Charging not radical enough

Ewan Smith, managing director of Scottish Life, said the analysis “falls short in a number of areas”, from failing to address weaknesses discovered in the buyer side of the DC market to inadequate recommendations over governance.

Mr Smith said the introduction of independent governance committees is “an important safeguard but it does not go far enough. This form of governance will not have sufficient influence within shareholder-owned providers to overcome vested interests, to waive transfer penalties and in-built profit-flows. It cannot demand that schemes switch, perhaps to another provider.”

He also warned that the pension market would need more urgent reform than that offered by the report, a sentiment echoed by Joanne Segars, chief executive of the National Association of Pension Funds.

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She said: “The report has set the future course with the right long term principles to secure good outcomes for pension savers. But we feel that action is urgently needed now. With automatic enrolment underway we need to get things right now, not further down the line.”

Roger Mattingly, president of the Society of Pension Consultants, said smaller employers who lack “in-house expertise” to determine pension pot value could be helped by the creation of larger pooled pension funds.

Meanwhile, Dale Critchley, pensions technical manager for Friends Life, said active member discounts need not be perceived in a negative light, contrary to what the OFT report suggested. He said: “We will not offer any new schemes with deferred member charging but it does not follow that all DMC schemes are bad.”

Pension providers also risk “stripping out all value” for auto-enrolment schemes if they engage in a race to the bottom on charges.

Lee Hollingworth, partner at pension consultancy Hymans Robertson, said: “If fees are pushed too far down that this could reinforce the predominance of passive management within default funds. There is a balance to be struck between low costs and the investment outperformance that the best actively managed funds offer but which are seldom available at the lowest costs.”

Adviser comment
Andy Holder, director of Yorkshire-based JM Glendinning Life & Pensions, said: “The danger is that they will alter the regulations so 1 per cent is deemed too high as an AMC. The providers will then turn off any ongoing adviser remuneration, so advisers will have to charge employers a fee for an ongoing service, which clients they will reject. So members save on charges but will not get the chance of an annual review.”