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OFT outlines reforms to tackle 'poor value' pensions

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The Office of Fair Trading's study into the £275 billion defined contribution (DC) pensions market has found savers are not getting "value for money".

The watchdog is recommending a series of reforms to improve the scrutiny of pension schemes on behalf of savers.

Around five million people are saving into DC pension schemes. This is expected to increase by up to nine million over the next five years, following the Government's introduction of auto-enrolment last October.

The OFT said many pension products are complex, which contributes to the difficulty of making the right choices, for individual savers and employers.

In its study the OFT has found employers often lack the capability or the incentive to asses value for money. The OFT said this problem has the potential to grow during auto-enrolment as smaller employers, with limited resources, are required to provide schemes for their employees.

'Rapid action'

The OFT is advising the Government to consider improving the transparency and comparability of different schemes.

It identified a risk of savers losing out in two parts of the market, in what it said were "old and high charging contract and bundled trust schemes" and in smaller trust-based schemes because of "low levels of trustee engagement and capability".

The Pensions Regulator, the OFT said, had agreed to take "rapid action" to look at whether the smaller schemes were delivering good value, and Government had agreed new enforcement powers to clamp down on them.

Protecting savers

The Association of British Insurers (ABI), whose members offer pension schemes, has agreed to carry out an audit of the larger schemes.

Pension providers will also have to set up governance committees to help protect savers.

The watchdog also called on ministers to look at preventing schemes being used for auto-enrolment which ramp up management costs for people when they stop contributing to their pension, perhaps because they have changed jobs.

The National Association of Pension Funds (NAPF) welcomed the report but argued it could have gone further to ensure good outcomes for pension savers.

"The NAPF supports the proposals to tackle legacy issues such as high charges but wants to be assured that the proposed audit of legacy contract-based schemes will be properly independent," said NAPF CEO Joanne Segars.

"We welcome the recommendation that small trust-based schemes are subject to scrutiny by the Pensions Regulator to ensure they offer value for money, as all pension schemes should be providing value for money, although we wish the OFT had gone further and recommended consolidation and the creation of super-trusts."

Segars added: "We are particularly concerned that the report risks letting down pension savers who need someone solely on their side, with the independence and power to act in their interests, to make sure they get the best outcomes for their retirement savings."