Mercer has welcomed the principles behind the OFT market study examining whether defined contribution (DC) schemes are set to deliver the best value for money for savers. However, Mercer voiced concern that the regulatory watch-dog may focus efforts on targeting DC scheme costs, rather than promoting overall service quality and positive outcomes for members.
The OFT study, launched on 17th January, aims to investigate whether competition in DC schemes will drive down cost and lead to higher quality pension schemes. By sizing up the pension pot which savers may end up with at retirement, the OFT intends to analyse whether savers will receive value for money.
Retirement Partner, Paul Macro commented, “DC schemes have been widely available in the UK for around 20 years. Government initiatives such as NEST (and previously stakeholder pensions), pressure from the Pensions Regulator, and fierce competition between pension scheme providers, have already driven scheme prices down to levels almost unimaginable 10-15 years ago.
Mr Macro added, “Charges are but one element in the consideration of what is ‘value for money’ in the DC market. The real purpose of a pension scheme is to provide members with an adequate income in retirement and this will rely on the level of scheme contributions. Only with a good base of contributions can low charges and good investment performance provide the benefits which DC scheme members expect.
“We urge the OFT to be clear on what is meant by ‘value for money’ and to consider pension members’ interests and benefit outcomes as paramount. Higher charges which deliver what some members would like, such as guarantees, should not be castigated and driven out. The key focus should be investments and services that are appropriate for the needs of specific groups of employee, combined with transparency of charges, and adequate levels of contributions.”
“Mercer hopes that the outcome of this enquiry does not lead to employers turning to low cost pension providers simply because they are cheaper. Consideration also needs to be given to the quality of the services on offer; otherwise, we are likely to see an increasing drift towards a handful of large 'super-schemes' on the basis of cost alone. Although these schemes have a lot to offer, it is important that employers weigh up the investment options, administration services and communication channels available, and whether these are appropriate for their workforce.”
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