Commenting on today’s Office of Fair Trading’s report on workplace pensions, Malcolm McLean, consultant at Barnett Waddingham says:
“This is a damning report in many respects and is clearly looking to the pensions industry to put its house in order on charges with a view to pension savers getting much better value for money than they do at the moment.
“The series of reforms it has recommended are in the main sensible and practical and include new powers for The Pensions Regulator – to monitor and where necessary enforce many of the changes to be made.
“The OFT has rightly recognised the changed landscape brought about by the introduction of auto-enrolment and the need to ensure employers are provided with the necessary information about cost and quality in order to make their important choice of scheme on behalf of their employees easier. In this context the Regulator will be taking “rapid action” to assess whether smaller trust based schemes are not delivering value for money and may need to be excluded. Further reflecting their concern the OFT has also asked the DWP to consult on preventing schemes being used for auto-enrolment that contain in-built adviser commissions, or that penalise members with higher charges when they stop contributing into their pensions.
“It is encouraging that the ABI has accepted the need for better governance of current contract based schemes as well as conducting an immediate audit of high charging legacy schemes. Many of these old personal pension schemes, which in total contain some 30 billion pounds worth of savings, have very high exit fees, trapping the plan holders in them and effectively preventing them moving their funds to more equitable arrangements elsewhere.
“Probably the only real surprise in the OFT report is that it has stopped short of recommending a specific cap on annual management charges – on the grounds that it would be too complex and problematic to implement. This is still open, of course, to the Government to introduce particularly in respect of default funds in auto-enrolment schemes and it is possible this will still happen in due course.”
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