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OFT to crack down on poor value pensions


The Office of Fair Trading (OFT) has ordered a crackdown on schemes that offer poor value to savers. The crackdown involves recommending a series of reforms that will give new and increased powers to the Pensions Regulator.

The OFT concluded that the complexity of schemes makes it particularly difficult for employers and individuals to assess their options in order to make the right choice, claiming that employers “lack the capability or the incentive to assess value for money.”

As a result, rather than recommending a cap on management charges, which can erode the final value of a pension dramatically, especially on some older schemes set up before 2001, the OFT has advised that the government considers improving the transparency and comparability of different schemes in order to make it easier for employers to assess the value of each scheme.

However, whilst a cap on management fees hasn’t been recommended for the time being, Clive Maxwell, the OFT’s Chief Executive has admitted that this is still under consideration for the future, stating “we’re holding off on that for now.” Maxwell further added that the cap “may be the right thing to do.”
For the time being, the Pensions Regulator has agreed to assess the value for money of some smaller schemes and the Association of British Insurers (ABI) has agreed to carry out an audit of its larger schemes. Furthermore, if the government does agree to the recommendations, the regulator could receive new enforcement powers, whilst pension providers would also have to set up governance committee’s ion order to protect pension holders.

Additionally, the OFT has asked the government to stop using schemes within their auto-enrolment programme which enforce high charges when savers stop paying into the schemes. There are already five million people enrolled in these auto-enrolment schemes with a further nine million people expected to be enrolled in these schemes over the next five years.

If you feel that you may be affected by this news, or you’re unsure about your current situation regarding a pension, then one of our advisors would be available to provide expert advice and will respond to your enquiry within 60 minutes*.

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