Pension schemes are poor value for money and risk leaving millions short of cash when they retire, the Office of Fair Trading warned today.
The OFT’s report into the £275 billion defined contribution (DC) pension market said high charges and poor governance had left savers at risk of losing out in two parts of the market.
The watchdog said £30 billion of savings in old and high-charging contract and bundled-trust schemes may not be getting value for money.
Meanwhile, £10 billion of savings in smaller trust-based schemes are also at risk because of inadequate trustee engagement and capability.
About five million people pay into DC plans while auto-enrolment — the Government scheme launched last year to force companies to put workers into a pension — will boost that to nine million in the next few years.
OFT chief executive Clive Maxwell said: “We have found problems in relying on competition to drive value for money for savers in this market.”
The OFT plans a shake-up of the system to ensure that savers get better outcomes. It has asked the Department for Work and Pensions (DWP) to give the Pensioners Regulator new enforcement powers to tackle the problem of small trust-based schemes.
It has told the Association of British Insurers to set up an immediate independent audit of high-charging contract and bundled-trust schemes.
Meanwhile the DWP will look at ways to prevent schemes being used for auto-enrolment that contain “in-built adviser commissions” or that penalise members with higher charges when they stop contributing to their pension.
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The measures stopped short of introducing a cap on management charges, but Mr Maxwell told the BBC: “We’re holding off on that for now, but it may be a cap is the right thing to do.”
