The OFT has also raised concerns over active member discounts, high charges in small trust-based schemes and legacy contract-based schemes. Concerns about trustee capability in smaller trust-based schemes have also been flagged.
The ABI is being required to carry out an urgent audit of charges across all workplace schemes run by life insurers to assess the scale of consumer detriment.
The Pensions Regulator has been charged with taking rapid action to assess which smaller trust based schemes are not delivering value for money. The Department for Work and Pensions has agreed to consider whether the TPR needs new enforcement powers to tackle the problem of high charges in small trust-based schemes.
The OFT has recommended that AMDs are banned for workplace pensions altogether. It has also recommended employees who are converted into an individual personal pension instead of being classified as deferred members of a scheme should also not be penalised in respect of the charges they pay.
A statement from the OFT says “In order to address our concern that employers may use existing schemes containing adviser commissions for AE we recommend that such schemes should not be used for employees who are automatically enrolled in the future.”
The OFT has also raised concerns that some new providers entering the market in the context of auto-enrolment may not win sufficient business to achieve economies of scale and deliver value for money. It says the ease with which it has been possible to set up a master trust has allowed a significant number of new master trust providers to enter the market. The OFT is concerned inefficient providers will put up charges or reduce the quality of the scheme in order make their business models viable or exit the market.
The OFT has also persuaded the ABI to agree that its members will establish independent governance committees. Committees will be asked to recommend changes to providers and escalate issues to regulators where they see risks of poor outcomes for savers.
OFT chief executive Clive Maxwell says: “Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. Whether people are starting pension-saving for the first time through automatic enrolment, or have already been saving for years, it is vital that they are saving in schemes which deliver good value for money.
’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.”
