A major offensive against pension charges that offer poor “value for money” has been launched by the Office of Fair Trading, which has stopped short of introducing an expected charges cap but has made a series of recommendations to boost transparency.
An OFT review of the £275bn defined contribution workplace pension market found particular issues in relation to older contract and bundled-trust schemes schemes sold prior to 2001 and smaller trust-based schemes, which represent around £10bn and £10bn of savings respectively.
Industry experts such as Saga director general Ros Altmann had predicted the regulator would introduce a cap on charges of 1 per cent. Ms Altmann stated yesterday (18 September) that the move should also apply to the government-backed National Employment Savings Trust, which charges significantly above this level.
OFT has stopped short of a cap at this stage, but it has reached agreement with the Association of British Insurers and its members that provide DC pensions to carry out an “audit” of schemes that charge more than 1 per cent to “establish both the charges and any benefits associated with them”. The audits, which will be overseen by an independent project board, must report back by December 2014.
ABI members have also agreed to establish ‘independent governance committees’ which will recommend changes and escalate issues to regulators where they see risks of poor outcomes for savers.
The Department for Work and Pensions has also agreed to consider whether the the Pensions Regulator needs new enforcement powers to tackle the problems of high charges at smaller schemes.
Beyond these agreements, OFT has made a series of recommendations for DWP to improve consumer outcomes, including:
• launching a consultation on improving the transparency and comparability of information about the cost and quality of schemes in order to make employers’ initial choice of scheme easier; and
• introducing rules 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 pensions.
Paul Matthews, chief executive of UK and Europe for Standard Life, said advisers should reassess old style schemes their clients are in.
He pointed out that as far back as 2001, Standard Life re-priced more than one million pension customers’ plans to a single annual management charge of less than 1 per cent, with many paying less than 0.5 per cent.
Mr Matthews said: “The introduction of independent governance committees is a positive step forward and will help to instil greater confidence for savers, and we have already commenced our search for the independent members of our committee.”
Clive Maxwell, chief executive of OFT, said: “We have found problems in relying on competition to drive value for money for savers in this market. We’ve therefore worked closely with the government, regulators and industry to agree a set of measures that we believe are an important step in helping to ensure that savers get better outcomes.”
