Defined contribution workplace pension market study

Document type
Report
Corporate author(s)
Great Britain. Office of Fair Trading
Publisher
Office of Fair Trading
Date of publication
19 September 2013
Subject(s)
Poverty Alleviation Welfare Benefits and Financial Inclusion, Older Adults
Collection
Social welfare
Material type
Reports

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In January 2013 the OFT launched a market study to investigate whether the defined contribution (DC) workplace pension market is working well for consumers. 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 complexity of the product. The complexity makes it difficult to make the right choices about pensions, for individual savers and employers.
  • Employers, who have the responsibility of deciding which pension scheme to choose for their employees, may often lack the capability or the incentive to assess value for money.

The OFT found that these weaknesses had already created a risk of savers losing out in two parts of the market:

  • Old and/or high charging schemes. Around £30 billion of savings in old and/or high charging contract and bundled-trust schemes may not be value for money.
  • Small trust based schemes. Around £10 billion of savings in smaller trust-based schemes are at risk of delivering poor value for money due to low levels of trustee engagement and capability.

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.

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