Start date: 17 January 2013
End date: 11 February 2014
The OFT is pleased to announce the appointment of the Independent Chair and Board members to oversee the audit of high cost and legacy defined contribution (DC) workplace pension schemes.
The OFT's report on the DC workplace pensions market (pdf 1.35Mb) published in September 2013 identified, amongst other things, around £30 billion of savings in old (pre 2001) and other high charging contract and bundled-trust pension schemes that may not be achieving value for money by the standards of modern DC workplace pension schemes.
As a remedy, the Association of British Insurers and its members agreed to undertake an audit of these schemes that will be overseen by, and report into, an Independent Project Board (IPB). The role of the IPB will be to agree the terms of reference for the audit, scrutinise the results and agree what industry-level actions are needed to address schemes not assessed as value for money.
The IPB's membership includes senior representatives from government, the regulators, consumer enforcement, finance and the OFT:
The audit is scheduled to be completed by the end of 2014.
The OFT provisionally concluded that the legal test for making a Market Investigation Reference (MIR) to the Competition Commission (CC) was met. However, in light of the fact that there were steps in place to address the competition concerns that we identified, we provisionally concluded that an MIR would not be appropriate in this instance and consulted on this provisional decision between 19 September 2013 and 31 October 2013.
Having carefully considered the responses to the consultation, the OFT remains of the view that although there are a number of features of the DC workplace pension market that satisfy the reference test, the package of remedies being developed are likely to impact the persistence of the features identified. Accordingly, the OFT will not be making a MIR to the CC in respect of the DC workplace pension market.
In January 2013 the OFT launched a market study to investigate whether the defined contribution (DC) workplace pension market is working well for consumers.
By 2018 up to nine million workers will be automatically enrolled into a DC workplace pension scheme by their employer. As a result, the sector will experience a major structural shift in a very short period of time. This will be driven by a sharp increase in the number of employees saving for their retirement through workplace schemes and a significant change in the profile of employers who choose a workplace scheme on their behalf.
The OFT therefore considered it timely to consider whether competition between providers is set up to work in the best interests of current and future savers to deliver low cost, high quality pension schemes.
On 19 September 2013 the OFT published the findings from its market study (pdf 1.35Mb) into DC workplace pensions.
Overall, the OFT found that competition alone cannot be relied upon to drive value for money for all savers in the DC workplace pension market. This arises from the combination of two factors:
The OFT has found that these weaknesses have already created a risk of savers losing out in two parts of the market.
In addition, the OFT is concerned that similar problems might occur in the future without measures to improve the governance and scrutiny of pension schemes on behalf of savers and the quality of information available.
To improve this market, the OFT secured agreement with the industry and the Pensions Regulator to important steps in tackling these problems:
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