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OFT to investigate if company pensions are any good
The Office of Fair Trading has launched a study into company pensions to see if they are fair and good value. The move comes as the government has started to 'auto-enrol' millions of workers into employer pension schemes.
by Michelle McGagh on Jan 17, 2013 at 12:54
The Office of Fair Trading (OFT) has launched a study into company pensions to determine whether they are good value for money and how much workers can expect retire on.
The OFT is looking at 'defined contribution' (DC) schemes, where the size of the pension pot at retirement is determined by how much money is put into it (by employee and employer) and how much this money grows over the years.
This type of scheme has largely replaced the traditional final salary or 'defined benefit' (DB) scheme, where employers took on most, if not all, the responsibility of providing pensions linked to their employees' pay.
The number of defined contribution schemes is set to rise dramatically thanks to the new government policy of automatically enrolling workers into their company pension schemes, if they earn over a minimum amount and do not yet contribute to a pension plan.
Four million people in the UK currently save into defined contribution pension schemes run by their employers but membership levels are expected to swell to beween six and nine million by 2018 as a result of auto-enrolment.
The OFT expects the new arrivals will save an extra £11 billion a year into pensions in five years' time.
The consumer watchdog says it wants to look at:
- How pension providers compete with one another and how the market may develop over time;
- Whether there is sufficient pressure on pension providers to keep charges low and how much information about charges is available to savers;
- Whether smaller firms face difficulties in making pension decisions in the interests of their employees;
- Whether smaller firms receive appropriate help and advice in setting up and running a workplace pension;
- Barriers to switching between schemes and a potential lack of employer engagement in setting up and managing pensions.
Mary Starks, senior director at the OFT, said the workplace pensions market was set for rapid growth and change. ‘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.’
To find out more about auto-enrolment and pension charges, check out these guides from The Lolly:
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