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By Sinead Cruise
LONDON, Sept 19 (Reuters) - A UK watchdog has unveiledproposals to shake up the 275 billion-pound ($439 billion)defined-contribution pensions market, parts of which offers poorvalue for money for up to 5 million savers.
The Office of Fair Trading (OFT) has stepped in toincrease confidence in workplace pension schemes and bolsterefforts by the British government to get more people to save forretirement, relieving pressure on taxpayers.
Concerns over value for money, the ability of pensions toprovide meaningful retirement income and whether employers andtrustees are choosing the right pensions for staff, havediscouraged many workers from parting with their cash.
Now, the OFT and the Pensions Regulator have agreed toaddress these issues and look at which trust-based schemes,currently managing around 10 billion pounds of pensions savings,could be failing members in these ways.
They are also looking into high fees charged to members ofolder contract and bundled trust schemes with around 30 billionpounds of savings. The OFT estimates that members in pre-2001schemes pay annual management charges some 26 percent higherthan members of schemes launched after this date.
"We have found problems in relying on competition to drivevalue for money for savers in this market," OFT Chief ExecutiveClive Maxwell said in a statement. He said the OFT had workedwith government, regulators and industry to agree a set ofmeasures to help to ensure that savers get a better deal.
The OFT also found employers often lack the experience orincentive to assess value for money when deciding which pensionscheme to choose for their employees.
This problem could grow as a government-sponsoredauto-enrolment initiative, aimed at solving the country'sretirement savings timebomb, rolls out across Britain in thecoming months, the OFT said.
To tackle these concerns, the Association of BritishInsurers has agreed to an audit of bundled trust schemes and tohelp to set up independent governance committees to increasescrutiny of pension schemes on behalf of members.
"It is important to remember that the level of contributionand how long someone works remain the most important factors indetermining an individual's overall retirement income," ABIChief Executive Otto Thoresen said.
The OFT has also recommended that the Department of Work andPensions increase transparency and comparability of pensionscheme costs and quality in order to make employers' selectionprocess easier.
Adrian Boulding, Pensions Strategy Director at Legal &General has called on the government to introduce a capon the charges payable by pensions savers in both new enrolmentschemes and legacy workplace pensions.
"We firmly believe that no employees saving in a workplacepension scheme should have to pay more than half a per cent ayear of their retirement savings pot whatever the size of thescheme and that low charge should be available for legacypension scheme members too," Boulding said.
Lee Hollingworth, partner at consultant Hymans Robertsonsaid he hoped planned reforms on how to improve quality ofadvice to savers wouldn't be lost in a debate on fees.
"At the moment the system relies too heavily on saversengaging with their scheme, but the majority of people are notequipped or interested in becoming their own pension adviser,"Hollingworth said.
He said savers needed clear information on what income theycan expect to retire on along with more hands-on direction onhow to reach their retirement target.
Last October, the government introduced automatic enrolment,requiring employers to pay into a workplace pension scheme forall staff unless they opt out. Automatic enrolment is beingintroduced over the next six years.
Defined contribution schemes are those where the size of thepension pot is linked to the contributions made by theindividual in their working life, the costs of the scheme andthe performance of the investments.
