Pensions market clampdown ordered over fears of rip-off charges for savers

A crackdown on the pensions market has been ordered by the trading watchdog as it warned that billions of pounds of savers’ cash is already at risk of delivering poor value for money.

The Office of Fair Trading (OFT) made a raft of recommendations to make sure that up to nine million people who will be saving into defined contribution (DC) workplace pensions in the coming years do not find their money being gobbled up by rip-off charges.

But consumer campaigners said further action is needed to “prevent billions of pounds of consumers’ money from languishing in poor-value schemes”.

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Up to £40bn-worth of pension savings could already be in schemes which are delivering poor value or are at risk of doing so, the OFT warned.

Around £275bn of assets is currently held in DC schemes, but this is set to at least double by 2022 as the Government’s automatic enrolment scheme is rolled out to encourage more people to save for their later years.

Confidence in pension saving is seen as vital to the scheme’s success – but the OFT found that “most employees do not engage with, or understand, their pensions”.

The OFT, which looked at how well competition works, advised the Government to look at improving the transparency and comparability of different schemes, to make it easier for employers to make the right choice.

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The Government should also look at preventing schemes being used for automatic enrolment which ramp up management costs for people when they stop contributing to their pensions, perhaps because they have changed jobs, the OFT said.

The Pensions Regulator will take “rapid action” to look at whether some smaller schemes are not delivering good value and it 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.

Clive Maxwell, OFT chief executive, said that with auto-enrolment already under way, the measures should be introduced “rapidly”.

The OFT warned that some older schemes set up before 2001 have management charges that can be much higher than newer schemes.

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