Providers have admitted last Thursday was a “sobering day” for the industry after the Office of Fair Trading published a highly critical report into the workplace pensions market.
The OFT report raises concerns about a range of issues in the industry, including high-charging legacy schemes, poor governance standards and a lack of transparency over pension fees and costs.
The body says it decided not to refer the industry to the Competition Commission after the Government, The Pensions Regulator and insurers agreed to a series of reforms.
Scottish Life managing director Ewan Smith says: “It was quite a sobering day for the industry because the OFT says there was enough material in here for a referral to the Competition Commission.
“So it obviously believes the quality of the market is not good enough and there is a lack of competition between providers, creating a real danger of poor value for money for members.
“The supply side of the market is too strong in relation to the buy side, but we think, post-RDR, the buy side will be a lot stronger and advisers will have a huge role to play in making sure the market is operating in members’ interests.”
Standard Life head of workplace strategy Jamie Jenkins says: “We agree there is an issue with legacy charges in the industry but we repriced all of our business in 2001 and brought over one million people into a single annual management charge of less than 1 per cent.
“But that is not true across the whole industry and there are providers who are not actively competing for new business who might not have the same incentive to keep charges down.”
However, the National Association of Pension Funds says the OFT’s report should have gone further to protect members’ interests.
NAPF chief executive Joanne Segars says: “We support the OFT’s proposals to tackle legacy issues such as high charges but want to be assured that the proposed audit of legacy contract-based schemes will be properly independent.
“We welcome the recommendation that small trust-based schemes are subject to scrutiny by The Pensions Regulator to ensure they offer value for money, as all pension schemes should be providing value for money, although we wish the OFT had gone further and recommended consolidation and the creation of super trusts.
“We are particularly concerned the report risks letting down pension savers who need someone solely on their side, with the independence and power to act in their interests to make sure they get the best outcomes for their retirement savings.
“The proposal to have governance as part of the provider risks fudging the issue and leading to potential conflicts of interest.”
Hargreaves Lansdown head of financial planning Danny Cox says: “The OFT report was pretty damning but these are not new problems. I think ultimately it will take regulatory action to force some providers to raise the standards on their legacy books.”