THE UK’S trading watchdog yesterday laid the ground for a root and branch overhaul of workplace pensions after a study said that the current system is ripping off some savers.
The Office of Fair Trading (OFT), which aims to protect consumers, said pensions were too complicated for many people to understand and employers running pension plans were too easy a target for some providers to rip off.
The study comes amid a huge increase in the amount of people entering workplace pension schemes due to new laws requiring millions of people to enrol into a pension.
The OFT identified pension schemes set up many years ago and very small schemes operating as trusts as two areas of vulnerability where savers were getting a raw deal.
“We have found problems in relying on competition to drive value for money for savers in this market,” OFT chief executive Clive Maxwell said.
In response to the criticism, the Association of British Insurers has agreed to audit old and high charging contract and bundled-trust schemes to make sure savers are getting value for money.
The Pensions Regulator has also agreed to examine very small schemes to see which ones are not delivering value for money. The OFT has also urged the Department for Work and Pensions to consult on improving the transparency of fund management fees paid by consumers.
The OFT report received a warm welcome from the insurance and pensions industry yesterday, with many backing their calls.
“The OFT’s reforms are necessary and needed. The current system means too many savers are getting a rough deal due to hidden complexities and charges,” PwC pensions partner Peter McDonald said.