Workplace pension schemes will be reformed following a report from the Office for Fair Trading (OFT) suggesting that some savers are not getting good enough value for money.
The report found that Defined Contribution (DC) workplace pension schemes may be failing to deliver good value for money for some of the five million UK individuals using such schemes to save for retirement.
According to the OFT DC workplace pensions are too complex and it is subsequently too difficult for individuals to make informed choices about their pensions and effectively assess risk or value.
The report found that pensions were too complex for individuals and employers alike, leaving choices difficult to take. The OFT also pointed out that complexity may cause difficulty when an increasing amount of smaller companies with fewer resources begin to auto-enrol employees.
In order to tackle these issues the OFT has reached an agreement with the The Pensions Regulator and UK business to reform DC workplace pensions, with the changes to be implemented including greater power to be given to The Pension Regulator. It is hoped that reform will help make it easier to compare and evaluate the benefits of different schemes.
Clive Maxwell, OFT Chief Executive, said:
“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.”
The DC workplace pension market is currently valued at an estimated £275 billion and is expected to grow dramatically as auto-enrolment continues to be phased in.
“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.”