Today’s report from the OFT highlights the complex mechanics of pension provision and has kept savings issues firmly in the spotlight after a summer of headlines and debate.
We agree with the OFT that giving customers confidence that they are getting value for money from their pensions is crucial to the continued success of auto-enrolment. ABI members offering contract-based workplace pensions have already made major changes to improve outcomes for pension savers with charges being lower, simpler and more transparent than ever before.
We have been working closely with the OFT during this review and have agreed a number of solutions that will ensure that all members receive value for money from their workplace pension in the future. Greater confidence in the governance of defined contribution schemes is an important part of building reputation in pension saving. That is why to ensure competitiveness in the market, ABI member workplace pension providers will establish independent Governance Committees by June 2014 which will maintain an on-going oversight of member workplace pension products which are aligned to the Pension Regulator’s principle’s and emerging DWP standards.
Pension charges have fallen steadily over the last decade and are at their lowest level. The OFT report shows that the average annual management charge for new auto-enrolment schemes is 0.51% and recently ABI members offered schemes for some of the largest employers of less than 0.3% annual management charge.
We do recognise that some older schemes have higher charges, and it’s important to note that these schemes were set up before pension reform, in an era when distribution costs were much higher. This is why ABI members have committed to an extensive audit of value for money of older pension schemes. This audit will be overseen by a Project Board with an independent chair and representatives from DWP, regulators, the industry and the OFT. The audit will be completed by December 2014.
We must all remember the most important determinants of retirement income are not the charges but how much is contributed and how long people choose to save and we will continue to work with the Government and others to ensure pensions reform is a success. The industry is working tirelessly to successfully implement auto-enrolment and has committed to meaningful reforms that will deliver greater transparency during the saving and retirement parts of the cycle so customers have the information they need to make the right decisions.
The OFT report is an important contribution to achieving this goal.