OFT to probe workplace pensions market

The Office of Fair Trading (OFT) is to look at whether or not defined-contribution (DC) pension schemes deliver the best value for money for employees, it was announced today.

Against the backdrop of the introduction of pensions auto-enrolment, which has so far been rolled out for employers with 30,000 employees or more (see all pensions auto-enrolment staging dates here), the OFT has decided to analyse whether or not competition will work in the best interests of these savers to deliver low-cost, high-quality pension schemes.

Mary Starks, senior director at the OFT, said the workplace pensions market is facing rapid growth and change: “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 market analysis, which should be completed by August 2013, will focus on value for money and the size of the pension pot savers will have at retirement, and will investigate:

• how pension providers compete and how the market may develop;
  
• whether or not there is sufficient pressure on providers to keep charges low;
  
• whether or not smaller employers will struggle to make good pension decisions in the interests of their staff; and
  
• barriers to switching between pension schemes and the potential lack of ongoing employer engagement in setting up and managing pensions.

National Association of Pension Funds chief executive Joanne Segars welcomed the OFT announcement: “People are often very suspicious of pensions, but that perception needs to change if our society is to save enough for its old age. Millions of people will get a new workplace pension under the much needed auto-enrolment reforms, and they need to have more confidence in the product.”

Morten Nilsson, chief executive of Now Pensions, said: “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. We hope that the OFT study will help employers select an appropriate scheme for their employees, which will enable them to save into a pension pot that provides adequately for their retirement.”

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Which employees qualify for automatic enrolment into a pension scheme? What is a “qualifying scheme” under the pensions auto-enrolment provisions? How much must employers and employees contribute into their pension scheme under the pensions auto-enrolment provisions? Do the auto-enrolment provisions affect employers that already provide their employees with access to a pension scheme?