UK to investigate whether pension providers compete on charges
UK – The UK's Office of Fair Trading (OFT) is to investigate whether pension providers are sufficiently competitive in offering value for money, the latest intervention on the issue of pension charges.
Coming a week after the Pensions Regulator launched a consultation on what it regarded as key elements of pension provision, including the importance of value for money for members, the senior director of the OFT's services, infrastructure and public markets group Mary Starks said it would be examining whether providers were "competing to offer the best possible deals".
She repeatedly stressed the importance of small employers making decisions in its employees' best interest.
She also cited the inevitable growth of defined contribution (DC) funds under auto-enrolment as the reason for conducting the investigation, which was welcomed by pensions minister Steve Webb.
The OFT said: "The way in which the market develops in the early stages of automatic enrolment could determine the range of the options available to pension savers and the risks to which they are exposed."
It is therefore "timely" to have the survey to look at how the market could potentially develop, it said.
National Association of Pension Funds chief executive Joanne Segars said the investigation came as part of a "growing focus" on whether providers could offer more value for money.
"Charges and annuities are a particular concern, and we hope the OFT sheds some light on these issues, which can make a huge difference to a pensioner's income," she said.
The Penisons Regulator's head of DC regulation Darran Burton noted that its DC principles required providers to put value for money at the heart of the offering.
"Our analysis has highlighted that in some segments of the market, employers and retirement savers lack the knowledge and engagement levels to demand good, value for money products," he said, adding, "The more focus on these issues, the better."
Meanwhile, Morten Nilsson, chief executive at Now Pensions, seized on the OFT's focus on small employers.
"There are about 205,000 DC schemes in the private sector, and there is currently a very real danger that smaller employers will use these older schemes for auto-enrolment, potentially bringing millions of new pension investors into poor-value default funds," he said.
Others noted that the OFT should weigh carefully how it communicates the outcome of the study, with Buck Consultants head of pensions policy Kevin LeGrand saying: "It would be very easy for this to be interpreted as an indication that pensions are broken, giving people further excuses not to contribute to a pension."
The OFT also said it would examine whether there were a lack of ongoing employer engagement in managing pensions, or if there were any "barriers" in switching between funds once enrolled.
The Association of British Insurers earlier this week said it had agreed on the implementation of "consistent and straightforward" fee disclosure guidelines.
It comes after the industry unveiled a voluntary code of conduct that the government welcomed as a "useful starting point".