Pensions providers are to come under scrutiny from the Office of Fair Trading (OFT) which has launched a study into defined contribution (DC) pension schemes examining whether they are set up to deliver the best value for money for savers.
Following the advent of auto-enrolment in October last year, which will add between six and nine million workers to the four million that already save into a DC scheme, the OFT said it had decided to study ‘whether competition will work in the best interests of these savers to deliver low cost, high quality pension schemes’.
The OFT will be working closely with the Department for Work and Pensions, The Pensions Regulator, and the Financial Services Authority during the course of its study.
The research will focus on value for money and the size of pension pot savers end up with at retirement.
It will look at the following:
- 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 the extent to which information about charges is made 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 maintaining workplace pension schemes.
- Barriers to switching between schemes and a potential lack of ongoing employer engagement in setting up and managing pensions.
Mary Starks, senior director in the OFT's Services, Infrastructure and Public Markets group, said auto-enrolment meant it was important savers got 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,’ he said.
The research is set to be complete the by August 2013.
The OFT’s move comes after months of mounting pressure from politicians on providers over the transparency and cost of schemes.
In October 2012 shadow pensions minister Gregg McClymont called on the OFT to probe the pensions industry over high and unclear charges.
Steven Cameron, Aegon head of regulatory strategy, said the study could lead to smaller firms engaging more with advice.
‘We're pleased to see the OFT will also examine if smaller firms receive help and advice,’ he said. ‘Advisers play a key role and we have concerns regulation is making it harder for them to help such employers. Advisers also encourage greater employer engagement which is particularly key as we progress with auto enrolment.’