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| OFT orders crackdown on 'poor value' pensions | OFT orders crackdown on 'poor value' pensions |
| (34 minutes later) | |
| The Office of Fair Trading (OFT) has ordered a crackdown on pension schemes that offer poor value to millions of savers. | The Office of Fair Trading (OFT) has ordered a crackdown on pension schemes that offer poor value to millions of savers. |
| It is recommending a series of reforms, including new powers for the Pensions Regulator. | It is recommending a series of reforms, including new powers for the Pensions Regulator. |
| But it has stopped short of recommending a cap on management charges, for the moment at least. | But it has stopped short of recommending a cap on management charges, for the moment at least. |
| It says pension schemes containing £40bn worth of savings are, or may be, delivering "poor value for money". | It says pension schemes containing £40bn worth of savings are, or may be, delivering "poor value for money". |
| The complexity of some defined contribution schemes makes it difficult for individuals and employers to make the right choices, the OFT concluded. | The complexity of some defined contribution schemes makes it difficult for individuals and employers to make the right choices, the OFT concluded. |
| Employers "lack the capability or the incentive to assess value for money", it said. | Employers "lack the capability or the incentive to assess value for money", it said. |
| As a result it is advising the government to consider improving the transparency and comparability of different schemes. | As a result it is advising the government to consider improving the transparency and comparability of different schemes. |
| Some older schemes set up before 2001 have management charges that can be much higher than those set up later. | Some older schemes set up before 2001 have management charges that can be much higher than those set up later. |
| Such charges can erode the final value of a pension quite dramatically. | Such charges can erode the final value of a pension quite dramatically. |
| Clive Maxwell, the OFT's chief executive, said he might still consider a cap on management charges in the future. | Clive Maxwell, the OFT's chief executive, said he might still consider a cap on management charges in the future. |
| "We're holding off on that for now," he told the BBC. | "We're holding off on that for now," he told the BBC. |
| "But it may be that a cap is the right thing to do," he added. | "But it may be that a cap is the right thing to do," he added. |
| However, the government may yet decide to go ahead with a consultation on a cap, after the Pensions Minister, Steve Webb, expressed his support for the idea earlier this week. | However, the government may yet decide to go ahead with a consultation on a cap, after the Pensions Minister, Steve Webb, expressed his support for the idea earlier this week. |
| He suggested that the Department for Work and Pensions (DWP) might consider a 1% cap on management fees. | He suggested that the Department for Work and Pensions (DWP) might consider a 1% cap on management fees. |
| High charges | High charges |
| In the meantime the Pensions Regulator has agreed to assess which smaller pension schemes are not delivering good value. | In the meantime the Pensions Regulator has agreed to assess which smaller pension schemes are not delivering good value. |
| If the government agrees, the regulator could also be given new enforcement powers. | If the government agrees, the regulator could also be given new enforcement powers. |
| The Association of British Insurers (ABI), whose members offer pension schemes, has agreed to carry out an audit of the larger schemes, some of which are charging up to 2.3% in annual management fees. | |
| Pension providers will also have to set up governance committees to help protect savers. | Pension providers will also have to set up governance committees to help protect savers. |
| The OFT has also asked the government to consider banning certain schemes being used for its auto-enrolment programme which make high charges when savers stop paying into the schemes. | The OFT has also asked the government to consider banning certain schemes being used for its auto-enrolment programme which make high charges when savers stop paying into the schemes. |
| The government is worried that such excessive costs could discourage people from taking out pensions, when it is trying to persuade people to participate. | The government is worried that such excessive costs could discourage people from taking out pensions, when it is trying to persuade people to participate. |
| Starting last October, workers are gradually being signed up to workplace pensions, unless they deliberately opt out. | Starting last October, workers are gradually being signed up to workplace pensions, unless they deliberately opt out. |
| Over the next five years, nine million extra people are expected to join so-called "defined contribution" schemes. | Over the next five years, nine million extra people are expected to join so-called "defined contribution" schemes. |
| Five million people are already saving into such pension schemes, which invest the monthly contributions in stock and bond markets. | Five million people are already saving into such pension schemes, which invest the monthly contributions in stock and bond markets. |
| Savers' retirement income is dependent on the investment returns made by such schemes, and the charges they levy. | Savers' retirement income is dependent on the investment returns made by such schemes, and the charges they levy. |
| The pension pot that savers end up with is then used to purchase a retirement annuity, which provides an income for the rest of their lives. | The pension pot that savers end up with is then used to purchase a retirement annuity, which provides an income for the rest of their lives. |
| The government has said it will now go ahead with some of the consultations recommended by the OFT. | The government has said it will now go ahead with some of the consultations recommended by the OFT. |