The market study will focus on value for money and the size of pension pot savers end up with at retirement. It will look at 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 and whether smaller firms face difficulties in making pension decisions in the interests of their employees.
It will also consider whether smaller firms receive appropriate help and advice in setting up and maintaining workplace pension schemes and the barriers to switching between schemes and a potential lack of ongoing employer engagement in setting up and managing pensions.
A negative report could spark a referral to the Competition Commission, enforcement action under the Competition Act, or recommendations to parties or to government.
The OFT plans to complete the study by August 2013.
Mary Starks, senior director in the OFT’s Services, Infrastructure and Public Markets Group, says: “The UK workplace pensions market is set for rapid growth and change over the next six years, in particular with the introduction of automatic enrolment. It is important that these savers get 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.”
TPR head of DC regulation Darran Burton says: “We welcome this review. Our analysis has highlighted that in some segments of the market, employers and retirement savers lack the knowledge and engagement levels to demand good, value for money products.
“Our principles for providers and trustees require them to put value for money at the core of their offering, and make it as simple as possible for employers to choose schemes that can demonstrate this. The more focus on these issues, the better.”
Morten Nilsson, CEO of Now Pensions says: “The Pensions Institute report on DC pensions, “Caveat Venditor” examined the default funds which an estimated 90-97 per cent of private sector employees will use under auto-enrolment. It raised serious concerns about the continued use of older funds with ‘toxic’ charges and showed that there is a 100 per cent difference in the pensions members achieve between the lowest and highest charging defined contribution (DC) default funds. A key recommendation was the introduction of a kite-mark code that can help these employers find value for money schemes.”
“There are about 205,000 DC schemes in the private sector and there is currently a very real danger that smaller employers will use these older schemes for auto-enrolment, potentially bringing millions of new pension investors into poor value default funds. We hope that the OFT study will help employers select an appropriate scheme for their employers, which will enable employees to save a pension pot which provides adequately for their retirement. “
Jon Dixon, corporate advice manager, AWD Chase de Vere, says: “There has been important progress on pension charges since the introduction of stakeholder pensions in 2001 and more recently with the arrival of new lower cost providers, such as Nest and Now Pensions, but there is still more that needs to be done.
“A huge problem, particularly for smaller employers, is a lack of independent financial advice which means that existing arrangements might not be reviewed objectively, the most appropriate new options might not be recommended and a lack of ongoing service means that employees are likely to be less engaged