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The Office of Fair Trading launches investigation into workplace pensions

The Office of Fair Trading (OFT) has launched an investigation to examine whether defined contribution (DC) workplace pension schemes are set up to deliver the best value for money for savers.

The consumer watchdog has identified the money purchase workplace pensions market as "an area of potential consumer harm". Its market study will look at how much money people end up with at retirement and whether there is sufficient competitive pressure on providers to keep charges low.

Four million savers in the UK are currently signed up to a defined contribution pension scheme with their employers. This number is set to rise dramatically as auto-enrolment is fully rolled-out - by 2018 an additional six to nine million workers will join.

The OFT said that with these changes taking place, it wanted to look at whether the schemes were set up to deliver a decent deal to savers.

"The market study will focus on value for money and the size of pension pot savers end up with at retirement," a spokesman for the OFT said.

It will look at competition between providers; whether there is enough pressure on them to keep their fees and charges low, and what information about charges is made available to savers; whether smaller firms face a bigger challenge in making pension decisions in the interests of their employees; the barriers to switching between schemes; and whether there is a problem with employers failing to engage with the issues.

Mary Starks, senior director in the OFT's services, infrastructure and public markets group, said: "The UK workplace pensions market is set for rapid growth and change over the next six years, in particular with the introduction of auto-enrolment.

"It is important that these savers get a good deal. We want to take a look at the market now to ensure that providers are competing to offer the best possible deals, and that the choices made by employers mean that employees are saving into good pension schemes for their retirement."

Steven Hartley, public relations manager, pensions investment firm, Standard Life, said: "We fully support the aim of this review, which is to ensure that pension scheme members are receiving value for money when they join a scheme and ultimately, that the savings they make are capable of delivering the right outcomes for them at retirement.

"This is crucial to the success of auto-enrolment, which we see as the most important opportunity of recent times to encourage people in the UK to save towards their retirement.

Hartley added: "It is also important that all employers, regardless of their size, are able to access good quality advice and guidance to allow them to put in place the right pension scheme for their employees, so we also welcome the OFT's focus on that area. We look forward to working with the OFT and the other industry bodies involved in this important review."

Morten Nilsson, CEO of Now Pensions, said: "There are about 205,000 DC schemes in the private sector and there is currently a very real danger that smaller employers will use these older schemes for auto-enrolment, potentially bringing millions of new pension investors into poor value default funds.

"We hope that the OFT study will help employers select an appropriate scheme for their employers, which will enable employees to save a pension pot which provides adequately for their retirement."