Millions will not have enough in retirement because pension schemes are poor value for money, warns OFT
Personal Finance Editor
Thursday 19 September 2013
Pension schemes are poor value for money and may risk leaving millions short of cash when they retire, the Office of Fair Trading warned today.
The Watchdog's report into the £275 billion defined contribution (DC) pension market said that high charges and poor governance has left the risk of savers losing out in two parts of the market.
The OFT said £30 billion worth of savings in old and high-charging contract and bundled-trust schemes may not be getting value for money.
Meanwhile £10 billion worth of savings in smaller trust-based schemes are also at because of inadequate trustee engagement and capability.
Some five million people currently pay into DC schemes while auto-enrolment - the Government scheme launched last year to force companies to put workers into a pension - will boost that figure to nine million in the next few years.
Clive Maxwell, OFT chief, said: "We have found problems in relying on competition to drive value for money for savers in this market.
"Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. but it is vital that they are saving in schemes which deliver good value for money."
The Watchdog plans a shake-up of the system to ensure that savers get better outcomes. It has asked the Department of Work and Pensions (DWP) to give the Pensioners Regulator new enforcement powers to tackle the problem of small trust-based schemes.
It has told the Association of British Insurers to set up an immediate independent audit of high-charging contract and bundled-trust schemes.
Meanwhile the DWP will investigate ways to prevent schemes being used for auto-enrolment that contain "in-built adviser commissions" or that penalise members with higher charges when they stop contributing into their pension.
There are also a number of other measures proposed to solve the problem of poor-value pension schemes but has stopped short, so far, of introducing a cap on management charges.
However, Mr Maxwell told the BBC: "We're holding off on that for now, but it may be that a cap is the right thing to do."
Reaction to the proposals was mixed. Malcolm McLean, consultant at Barnett Waddingham said: "This is a damning report and is clearly looking to the pensions industry to put its house in order on charges with a view to pension savers getting much better value for money than they do at the moment."
But Joanne Segars, chief executive of the National Association of Pension Funds Chief Executive, said a proposal for schemes to have governance committees could lead to a conflict of interest.
"The report risks letting down pension savers who need someone solely on their side, with the independence and power to act in their interests," she said. "Employers should be prepared to provide governance themselves or use a master trust arrangement."
Tom McPhail, head of pensions research at Hargreaves Lansdown, also criticised the governance proposals. "The measures proposed are weak and the missing link is getting people engaged with their pension savings. In the long run where we need to get to is to use the efficiencies of setting up group pensions through the workplace and then put individuals in control of their own retirement savings."
- 1 International Women's Day 2014: The shocking statistics that show why it is still so important
- 2 Orgasm machine to deliver climax at the push of a button
- 3 Dear 'The Sun', breast cancer isn't sexy
- 4 Singapore sting: Sky-high prices are pushing locals to the edge of affordability
- 5 Liam Neeson turned down James Bond role because late wife Natasha Richardson said she wouldn't marry him if he took it
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
White people become less racist just by moving to more diverse areas, study finds
Exclusive: Impact of immigrants on British workers ‘negligible’
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...
Day In a Page
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew