The Office of Fair Trading (OFT) has identified several areas of concern in the pensions market and is focusing its investigation on adviser-commission and two-tier member charging structures.
The OFT began its investigation into the industry in January and issued an update this morning. The organisations final report is set for release at the end of next month.
The update identified several issues which could be hitting savers.
- A number of schemes have been set up with two-tier charging structures, where those members who have stopped making contributions pay a higher annual management charge percentage.
- There are a number of schemes open for auto-enrolment that appear to have built-in adviser commissions and which may not represent the best value for money for those that could be enrolled into them.
- The current level of governance over the performance of some schemes may not be sufficient to ensure that scheme members are getting the best possible investment outcomes.
- There may be a number of schemes that do not have a realistic prospect of reaching sufficient scale to generate value for their members.
- The way that different providers currently present their charges may mean that they are not easily comparable.
- There may be some schemes - primarily but not exclusively those sold prior to 2001 - that have charges that may not represent the best value for money, or that may not reflect current standards of scheme design.
The OFT said in the next phase of its work it would further explore these issues.
The update said: "In particular, on the basis of the work it has performed to date, it has some concerns about the way that certain parts of the sector function and the implications that this could be having for savers.
"Over the next month we will be holding discussions about these concerns with the industry, the government and regulators.
"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."
It added: "Discussions of possible future actions will also consider the relevance of current or existing initiatives undertaken by regulators or the industry."Aegon said the update was an opportunity for industry players to provide further input ahead of the final recommendations.
Regulatory strategy manager Steven Cameron said: "While those who've stopped contributing can be subject to a higher percentage charge, it's often on a much smaller fund meaning they may be paying less in £ terms than their colleague who continues contributing. Surely it's the £s that matter more than the %.
"It's important to recognise this approach to charging is a means of reducing cross-subsidies from stayers to leavers."
He added: "Any review of charges should be based on the total charges. Whether or not some are paying for commission is secondary. We shouldn't forget that an adviser's involvement often leads to improved member outcomes through better scheme design or higher employer contributions.
"We hope the DWP's forthcoming consultation on price capping will make full use of the data the OFT has collected and take a proportionate and targeted approach."
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