Warning over poor value pensions

CoinsNew pension savers are in danger of sinking their cash into poor value schemes as the Government's landmark retirement reforms roll out, the trading watchdog has found.

Up to eight million workers will be automatically placed into a defined contribution (DC) workplace pension by their employer over the next five years as part of efforts to get people saving more for their later years.

The Office of Fair Trading (OFT) is carrying out a probe into DC schemes to make sure that savers will be able to make the most of their investments and will publish its full findings next month.

Fears have been raised that many people will have little previous experience of pensions and there is a danger that smaller employers in particular could bring investors into schemes which do not represent a good deal.
The watchdog is looking at aspects of the market including the size of the pension pot people are likely to end up with on retirement, whether there is enough pressure on providers to keep their costs down and how clear charges are.

In a progress update, the OFT flagged several issues which could hold back people's ability to get a good retirement income.

These include schemes which include adviser commission payments which "may not represent the best value for money for those that could be enrolled into them", the watchdog said.

It also raised concerns over schemes which have "two-tier" charging structures, whereby people who have stopped making contributions into a particular pension pot, perhaps because they have changed jobs, end up paying higher annual management charges.

Pension charges were also found to be hard to compare in some cases because providers do not present them consistently, which could make it harder for people to shop around.

The OFT said it was also worried that several schemes may "not have a realistic prospect" of growing large enough to generate value for those enrolled into them. The watchdog will spend the coming weeks discussing possible action with Government and regulators.