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Adrian Boulding: Why Govt must implement OFT’s proposals

The OFT’s report into the DC pensions market has flagged up several pressing issues the the Government to get to grips with.


Last week saw the publication of the long-awaited report from the Office of Fair Trading into defined contribution pension schemes.

The OFT has called for the Department of Work and Pensions to address three key issues: quality and value for trust based schemes, especially for small employers, changes for legacy schemes with high charges to ensure they deliver value for money  and strengthening governance for contract based schemes.

The DWP should now take forward the introduction of a charge cap on the costs of pension provision to customers for both new auto enrolment schemes and legacy workplace pensions.

This is long overdue and will once and for all break the practice of charging small employers higher fees because they have fewer members in their pension scheme and will bring old ‘legacy’ pension schemes into the modern low charging world.

We firmly believe that no employee saving in a workplace pension scheme should have to pay more than half a per cent a year of their retirement savings pot whatever the size of the scheme and that low charge should be available for legacy pension scheme members too.

The OFT has raised the issue of scrutiny of workplace pensions and called for improved governance.

We have long been aware as an industry that good governance will deliver better member outcomes for most members over the long term.

We have already implemented independent governance for contract based schemes in line  with the ABI initiative for its members. In May, we announced the launch of our Investment Governance Oversight committee. It is designed to work both with contract schemes’ own governance committees and to take sole responsibility where no other governance exists. IGO will mirror the governance structure of our mastertrust where the balance of powers is independent of the Legal & General Group of Companies.

Further, we support the need to end the practice of higher charges for members who have stopped contributing, the so called deferred members, to subsidise charges for other members.

We have long been advocates of value for money pensions for the workplace and have avoided opaque charging structures such as active member discounts, consultancy charging fees and commission. 

Pension savers should have a single charge, with no hidden fees, whether they are actively paying into the company pension or a classed as deferred members. That way they will be able to easily compare charges when they choose a pension or enrol into their company pension scheme.

If the DWP act on the OFT’s recommendations, around 6 million new savers, who are yet to be auto enrolled into a company pension, will benefit from transparent charges and value for money pensions. That should help to restore confidence in saving for the long term, whether saving in a company scheme or in a private pension.

We would encourage the Government act promptly in the light of these findings to pave the way for low pension charges for all savers.

Adrian Boulding is pensions strategy director of Legal & General



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