LONDON (Reuters) - Britain's Office Of Fair Trading has unveiled a raft of reforms to shake up the 275 billion pound defined contribution pensions market, parts of which are offering poor value for money for up to 5 million savers, the watchdog said on Thursday.
The OFT and the Pensions Regulator have agreed to assess which smaller trust-based schemes, currently managing around 10 billion pounds of pensions savings, could be failing their members due to low levels of trustee engagement or capability.
They are also probing the validity of the high fees charged to members of older contract and bundled trust schemes, currently containing around 30 billion pounds of savings.
"We have found problems in relying on competition to drive value for money for savers in this market. We've therefore worked closely with the government, regulators and industry to agree a set of measures that we believe are an important step in helping to ensure that savers get better outcomes," OFT Chief Executive Clive Maxwell said in a statement.
In addition, the OFT has found employers may often lack the experience or incentive to assess value for money when deciding which pension scheme to choose for their employees.
This problem has the potential to grow as the government-sponsored auto-enrolment initiative, aimed at solving the country's retirement savings timebomb, rolls out across Britain in the coming months, OFT said.
To tackle these concerns, the Association of British Insurers has agreed to an immediate audit of bundled trust schemes, while independent governance committees will also be set up to increase scrutiny of pension schemes on behalf of scheme members.
The OFT has also recommended that the Department of Work and Pensions increase transparency and comparability of pension scheme costs and quality to make employers' choices easier.
Last October, the government introduced automatic enrolment, requiring employers to pay into a workplace pension scheme for all staff unless they opt out. Automatic enrolment is being introduced over the next six years, beginning with larger employers, followed by medium-sized then smaller employers.
Defined contribution schemes are those in which the size of the pension pot accrued is linked to the contributions made by the individual in their working life, the costs of the scheme and the performance of the investments.
(Reporting by Sinead Cruise; editing by Laurence Fletcher)