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OFT orders crackdown on 'poor value' pensions OFT orders crackdown on 'poor value' pensions
(35 minutes later)
The Office of Fair Trading (OFT) has ordered a crackdown on pension schemes that offer poor value to millions of savers.The Office of Fair Trading (OFT) has ordered a crackdown on pension schemes that offer poor value to millions of savers.
It is recommending a series of reforms, including new powers for the Pensions Regulator.It is recommending a series of reforms, including new powers for the Pensions Regulator.
But it has stopped short of recommending a cap on management charges. But it has stopped short of recommending a cap on management charges, for the moment at least.
It says pension schemes containing £40bn worth of savings are, or may be, delivering "poor value for money".It says pension schemes containing £40bn worth of savings are, or may be, delivering "poor value for money".
The complexity of some defined contribution schemes makes it difficult for individuals and employers to make the right choices, the OFT concluded.The complexity of some defined contribution schemes makes it difficult for individuals and employers to make the right choices, the OFT concluded.
Employers "lack the capability or the incentive to assess value for money", it said.Employers "lack the capability or the incentive to assess value for money", it said.
As a result it is advising the government to consider improving the transparency and comparability of different schemes.As a result it is advising the government to consider improving the transparency and comparability of different schemes.
Some older schemes set up before 2001 have management charges that can be much higher than those set up later.
Such charges can erode the final value of a pension quite dramatically.
Clive Maxwell, the OFT's chief executive, said he might still consider a cap on management charges in the future.
"We're holding off on that for now," he told the BBC.
"But it may be that a cap is the right thing to do," he added.
ChargesCharges
The Pensions Regulator has agreed to assess which smaller pension schemes are not delivering good value. In the meantime the Pensions Regulator has agreed to assess which smaller pension schemes are not delivering good value.
If the government agrees, the regulator could also be given new enforcement powers.If the government agrees, the regulator could also be given new enforcement powers.
The Association of British Insurers (ABI), whose members offer pension schemes, has agreed to carry out an audit of the larger schemes. The Association of British Insurers (ABI), whose members offer pension schemes, has agreed to carry out an audit of the larger schemes, some of which are making big charges.
Pension providers will also have to set up governance committees to help protect savers.Pension providers will also have to set up governance committees to help protect savers.
The OFT has also asked the government to consider banning certain schemes being used for its auto-enrolment programme which make high charges when savers stop paying into the schemes.The OFT has also asked the government to consider banning certain schemes being used for its auto-enrolment programme which make high charges when savers stop paying into the schemes.
Five million people are already saving into defined contribution pension schemes, which invest money in stock and bond markets.Five million people are already saving into defined contribution pension schemes, which invest money in stock and bond markets.
Savers' retirement income is dependent on the investment returns made by such schemes.Savers' retirement income is dependent on the investment returns made by such schemes.
Over the next five years a further nine million people are expected to be automatically enrolled into defined contribution schemes.Over the next five years a further nine million people are expected to be automatically enrolled into defined contribution schemes.