The Office of Fair Trading has revealed concerns about charging structures in defined contribution workplace pensions and particularly schemes that are open for auto-enrolment that include “built-in” adviser commission and that may not represent “value for money”.
In an update on its market study on the DC workplace pension market, published today (11 July), the OFT says that it has concerns about the “way that certain parts of the sector function” and the implications this could have for savers.
It highlights a number of schemes have been set up with “two-tier charging structures”, where those members who have stopped making contributions pay a higher annual management charge percentage.
It also claims there are “a number of schemes open for auto-enrolment that appear to have built-in adviser commissions”, which it said “may not represent the best value for money for those that could be enrolled into them”.
The OFT says it has also found there may be a number of schemes that do not have a “realistic prospect of reaching sufficient scale to generate value for their members”, and suggests some providers may be presenting their charges in such a way that precludes easy comparable.
Over the next month, the OFT will be holding discussions about these concerns with the industry, the government and regulators, it adds.
“The purpose of these discussions will be to discuss the scope and scale of our concerns, and to consider what action, if any, might be appropriate to address them. Discussions of possible future actions will also consider the relevance of current or existing initiatives undertaken by regulators or the industry.”
The study was launched in January and is due to end in August, with the purpose of the study being whether the DC workplace pension market is working well for consumers.
Within the next five years, up to 8m workers will be automatically enrolled into a defined contribution workplace pension scheme by their employer.
As a result, the sector will experience a major structural shift in a very short period of time. This will be driven by a sharp increase in the number of employees saving for their retirement through workplace schemes and a significant change in the profile of pension savers, the OFT states.
