Mr Bridgeman slated existing pension provision, which he said failed to meet consumers' needs. He said: "Action has been taken to root out and deal with recent pension scandals, but our investigation shows that existing pension products are still failing to meet consumers' needs."
Launching the three-volume report, he said: "I hope we can all recognise we can do better and the time has come to do better. The time has now come to take the UK a major step forward and to lead with the best pensions which money can buy."
The OFT recommended a new kind of retirement savings scheme, called a Designated Pension Plan (DPP), which would dispense with costly investment managers and invest pension contributions in tracker funds, which match the movements of the stock market.
According to Mr Bridgeman, the new schemes would be an alternative to the current defined benefit occupational schemes linked to final salaries and the defined contribution, or money purchase, schemes that form the basis of personal pensions.
Both types of scheme were unsatisfactory, the OFT report concluded. Defined benefit schemes penalised all but the small minority of workers who stayed with one employer for the whole of a 40-year career. Defined contribution schemes, which were apparently more flexible, paid the price through "inefficient and expensive distribution, failure to achieve economies of scale and expensive fund management".
According to the report the worst defined contribution schemes ate up almost 30 per cent of pension contributions in commission and other charges. The bulk of these charges were taken in the early years of a scheme, hitting hard anyone who was unable to maintain payments.
Key features of the proposed DPP, include:
8 Passive fund management. Mr Bridgeman said tracker funds that attempted no more than matching stock market indices delivered better and cheaper financial performance than traditional actively managed funds which were unable to consistently beat the market.
8 Systematic reduction of investment risk. The proposed funds would safeguard pensions by reducing the exposure to equities over a consumer's working life. Eventually funds would be wholly invested in risk free assets such as index linked gilts.
8 An index-linked annuity, purchased on the open market, with no penalties for shifting to a new provider. Men and women would receive equal annuity rates.
8 Fixed expenses with no hidden element. Unlike current pension products, charges would not be loaded towards the early years of a plan. This would avoid penalising anyone who failed to maintain contributions over the whole period of the plan.
8 Obligatory employers' contributions. Anyone who wanted a DPP rather than an occupational pension scheme would be entitled to contributions from their employer.
Mr Bridgeman was speaking at the end of a nine-month investigation by the OFT into pension provision, which had been set up to identify areas where consumers were being let down by the current system.
He added: "Many personal plans are poor value and benefits are frequently eroded by the high cost of marketing and fund management. These expenses are often loaded on to the early years of the plan and they bear disproportionately on people who discontinue the pension because of changes in personal circumstances."
The most contentious part of the report in the City was its claim that expensive fund managers were not earning their keep: "There is no convincing evidence that fund managers can consistently outperform the market over the period of a pension plan, although the industry does not like to face up to this."
Pension providers yesterday played down the severity of the OFT criticism. A spokesman for the Association of British Insurers said the proposal had much in common with its own proposals for increasing the flexibility of pension plans.
Defending the performance of the fund management industry, Julian Samways, head of marketing at Schroder Investment Management, said: "There is evidence that a proportion of active managers do consistently outperform indices." He said that pension funds that choose the outperformers benefit and that performance can last for extended periods.
The report was welcomed by the Government, which is expected to announce tomorrow its own review of pensions provision.
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