The consumer watchdog has highlighted the money purchase workplace pensions market as “an area for concern”, and its market study will look at how much money people end up with at retirement and whether there is sufficient competitive pressure on providers to keep charges low.
When auto-enrolment is fully rolled out, it is expected that by 2018 an extra six to nine million workers will join a defined contribution pension scheme. Currently there are about four million people in the UK saving into such schemes, according to figures.
The OFT said that with these changes taking place, it wanted to look at whether the schemes were set up to deliver a decent deal to savers. A spokesman said:
“The market study will focus on value for money and the size of pension pot savers end up with at retirement.”
It has been reported that it will look at competition between providers; whether there is enough pressure on them to keep their fees and charges low and what information about charges is made available to savers; whether smaller firms face a bigger challenge in making pension decisions in the interests of their employees; the barriers to switching between schemes; and whether there is a problem with employers failing to engage with the issues.
Mary Starks, Senior Director in the OFT’s services, infrastructure and public markets group, said:
“The UK workplace pensions market is set for rapid growth and change over the next six years, in particular with the introduction of auto-enrolment.
“It is important that these savers get a good deal. We want to take a look at the market now to ensure that providers are competing to offer the best possible deals, and that the choices made by employers mean that employees are saving into good pension schemes for their retirement.”
The OFT said it would be working closely with the Department for Work and Pensions, the Pensions Regulator and the Financial Services Authority, and the study should be completed by August 2013.