OFT missed the opportunity to better pensions
The OFT's report into DC pensions was supposed to mark a shake-up in the pensions industry but unfortunately it's only slightly stirred it. After much speculation that it would recommend a cap on workplace pension charges it stopped short, citing three reasons.
The first is that providers charging below the cap will increase their costs, the second is that other benefits could be lost and thirdly, well, in layman's terms; it's too difficult.
The OFT said it found 18 different charging combinations when it looked into it and that it would be too hard to put a cap on it. The problem is though, if the OFT and all its pension experts can't work out how to compare charges then how on earth is a consumer supposed to?
It's bad enough that schemes are a rip-off but it's even worse when there is no way to compare charges and see whether we are being ripped off and where we should go instead.
On the plus side, the report did recommend a ban active member discounts which mean someone paying in is charged a lot less than someone not paying in – for example ex-employees. It also wants the government to ban in-built adviser charges which mean employees pick up the cost of advice, often without knowing, given to a company scheme even if they didn't receive advice personally.
It's great that these stealth charges are being targeted but the report just draws the spotlight further towards the other charges, which if incomparable or even understandable all become stealth charges.
The Department for Work and Pensions is still looking at a cap and pensions minister Steve Webb has been making encouraging noises. It knows that for auto-enrolment to be a success then people not only have to be placed into pensions but incentivised to stay in, being charged up to the eyeballs isn't an incentive.
The government has done the pensions industry a big favour with auto-enrolment, creating a ready-made customer base of up to nine million people. Now the pensions companies need to do all of us a favour and make moves to become more transparent and most importantly, better value.