Active member discounts, adviser commission on auto-enrolment schemes and poor governance have all been flagged as concerns worthy of further investigation by the Office of Fair Trading.
In an update issued today the OFT also raised concerns over the small scale of some schemes, opacity of charging structures and poor value pre-stakeholder charging structures.
Labour has latched onto the OFT’s concerns over the problems consumers face comparing scheme charges, arguing they support the need for its amendment to the Pensions Bill giving the government power to require full charge disclosure.
A statement from the OFT says: “The current level of governance over the performance of some schemes may not be sufficient to ensure that scheme members are getting the best possible investment outcomes.
“A number of schemes have been set up with two-tier charging structures, where those members who have stopped making contributions pay a higher annual management charge percentage.
“There are a number of schemes open for auto-enrolment that appear to have built-in adviser commissions and which may not represent the best value for money for those that could be enrolled into them.
“Over the next month we will be holding discussions about these concerns with the industry, the Government and regulators. The purpose of these discussions will be to discuss the scope and scale of our concerns, and to consider what action, if any, might be appropriate to address them. Discussions of possible future actions will also consider the relevance of current or existing initiatives undertaken by regulators or the industry.”
Labour shadow pensions minister Gregg McClymont MP says: “The OFT investigation called for by Labour is focusing on the right issues. This should be a signal to the Government to back down and accept Labour’s amendments to the Pension’s Bill. Given the OFT focus on the lack of clarity about what pension schemes charge people – it is shocking that the government opposes Labour’s amendment to the Pension Bill which would have given the government power to require full disclosure of costs and charges.”
“Labour’s proposals would give the government power to prevent rip-offs and ensure everyone could save into a pension scheme they could trust. Without our amendments the Bill is only half a reform.”
Hargreaves Lansdown head of pensions policy Tom McPhail says: “New pension schemes are not the problem in most cases. As confirmed to the DWP select committee last year, the vast majority of new schemes are charging members 1 per cent a year or less.
“The Government will shortly publish its thoughts around the introduction of a price cap for auto-enrolment schemes, it is also already moving to ban consultancy charging. However the risk remains that legacy arrangements and dormant savings in high charging schemes will get left behind. Unfortunately for savers with dormant pensions there is unlikely to be anyone coming to their rescue. If they want to give their retirement savings a boost they are going to have to move the money themselves.”