The FCA and Department for Work and Pensions will soon be contacting pension providers who have failed to make sufficient progress on reducing high costs and charges.
Though providers have made “significant progress” in getting better deals for defined contribution savers since a 2013 market study, the regulator and government said that progress is “unsatisfactory or unclear” when it came to 16 per cent of the assets under management in contract-based schemes and 15 per cent in trust-based schemes.
The FCA and DWP will expect these providers “to explain the reasons behind this and to ensure that savers are being treated fairly,” they said in a statement today.
Pensions minister Richard Harrington says: “I am pleased that more than a million pension savers will benefit from our push to curb excessive charges in legacy schemes.
“Nevertheless, some people are still at risk of high charges, so I shall be seeking assurances from the providers of those schemes, that they will be taking steps to resolve this issue.”
The 2013 study by the Office of Fair Trading estimated that £30bn of DC savings could be delivering poor value for money.
A review into the progress made published today, the FCA and DWP estimate that for two thirds of workplace pension savings that were poor value for money, charges have been cut to 1 per cent or less, or will be in the near future.
The government said that some schemes had not reduced fees yet because providers were still waiting for permission from customers to move them to a scheme with lower charges.
Analysis by AJ Bell suggests that growth of up to 10% of an initial pot value could be missed out on as a result of extra charges as low as 25 basis points in poor value for money schemes.
AJ Bell senior analyst Tom Selby says: “Clearly it’s good that some progress has been made on costs and charges in workplace schemes. However, it is worrying that three years on from the OFT’s damning report into workplace pensions – and despite the introduction of a 0.75% charge cap on default auto-enrolment funds in April 2015 – over 300,000 members may still be in poor value for money schemes.
“The DWP and FCA are right to focus on this part of the market and should seek reassurances from providers that they will address the issues raised as a matter of urgency.”