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Crackdown call on rip-off pensions
The trading watchdog has made a string of recommendations to shake up the pensions market to make sure that millions of new savers do not sink their money into rip-off schemes.
The Office of Fair Trading has been carrying out a study into the £275 billion defined contribution (DC) workplace pensions market, to look at whether such schemes offer value for money, if there is enough pressure on providers to keep their charges low and what size of pension pot savers are likely to end up with at retirement.
It said that the Government should consult on improving the transparency and comparability of pension schemes to make it easier for employers to choose a scheme for their workers. At present, employers "may often lack the capability or the incentive to assess value for money", it said.
The size of the sector is set for rapid growth over the next five years, as up to nine million people are automatically placed into a scheme by their employer as part of Government efforts to get people saving more for their later years.
Minister for Pensions Steve Webb said: "This report outlines further important ways to help consumers, and we will act on its recommendations. In particular, we need to ensure those already in pension schemes are getting good value for money, and will be actively involved in the audit of pension schemes sold prior to 2001. We will consult shortly on minimum scheme standards, including further action on charges."
The OFT said the Government should look at preventing schemes being used for automatic enrolment which ramp up management costs for people when they stop contributing to their pension, perhaps because they have changed jobs. The watchdog has also secured an agreement with industry and the Pensions Regulator, which works to prevent problems developing in the market, on a set of reforms.
The Pensions Regulator has agreed to take "rapid action" to look at whether some smaller schemes are not delivering good value and the Government has agreed that the pensions body could be given new enforcement powers to clamp down on this.
The Association of British Insurers (ABI) has also agreed to an immediate audit of old and high-charging schemes which contain around £30 billion of savings and which the OFT said may not be delivering value for money.
The ABI has agreed that its members will set up independent governance committees to improve the scrutiny of schemes on workers' behalf. These committees will be able to escalate problems to regulators if they are concerned that savers are at risk of getting a bad deal.
Clive Maxwell, OFT chief executive, 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. It is important, particularly given that automatic enrolment is already under way, that these measures are implemented rapidly."