UK – The lack of scale among defined contribution (DC) funds in the UK was once again the focus of concern by a regulator, as the Office of Fair Trading (OFT) noted that some schemes had no "realistic prospect" of achieving the size required to benefit members.

Offering a progress report on its investigation of competition among UK DC schemes – launched in January, with its findings driving recent consideration of a default fund charge cap – the consumer protection body also raised concerns about the level of governance among savings vehicles.

The OFT said it would now seek to engage the industry on these and several other concerns.

In a statement, it said: "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."

Responding, the National Association of Pension Funds (NAPF) said the OFT had made the "right diagnosis" on both governance and scheme sizes – where the regulator said it feared schemes did not have "a realistic prospect of reaching sufficient scale to generate value for their members".

NAPF chief executive Joanne Segars argued there were currently too many small funds.

"While some small schemes are well run, too many struggle to deliver good value for money," she said.

"Bigger schemes are more likely to offer strong governance and keep costs down through economies of scale."

Segars called for a "radical reshaping" of the UK pensions market, once again referencing the organisation's preference for a small number of large-scale, super trusts overseen by trustees.

Malcolm McLean, consultant at Barnett Waddingham, said it was "clear" the OFT was taking a close look at legacy pensions arrangements and surrounding charges, with its comments explicitly referencing the fee structures of pre-2001 arrangements as well as the use of active member discounts.

"The OFT may want to see firmer action from the government and the regulators to address the problem more directly," McLean said.

"The tone of the OFT's interim comments suggests there are ongoing concerns, and we can expect many recommendations for change at the conclusion of the review."

Some of the regulator's concerns are set to be addressed by the Department for Work & Pensions.

In its recent consultation on quality standards for DC funds, it indicated that trustees should consider whether a fund's lack of scale could reduce member outcomes.

The call for evidence also recommended the introduction of additional levels of governance for contract-based schemes to ensure that member considerations were not secondary to commercial concerns.