Automatic enrolment will generate an extra £11 billion a year in pension savings from around six to nine million people newly saving or saving more into a pension. In most cases people will be automatically enrolled into a defined-contribution (DC) pension scheme. These schemes must deliver the best possible value for money and good outcomes for scheme members. The recent Office of Fair Trading (OFT) DC market study found that competition alone cannot be relied upon to drive value for money in the DC workplace pension market due to weaknesses in the buyer side of the market and the complexity of the product. Government intervention is necessary to ensure all individuals saving into a workplace pension get value for money. This document assesses the impact of two options.
Option 1 is to do nothing which is seen as an unreasonable option. Although some savers would see an improvement in governance, this would not provide sufficient protection for all savers. It is likely that this option would not be sufficient to avoid a referral of the DC workplace pensions market to the Competition Commission.
Option 2 is intended to improve governance to help protect savers from the consequence of the weak demand side identified in the OFT’s analysis of the market for DC workplace pensions and is the Government’s preferred option. This option would form part of the overall package of reforms that the Government is proposing to address the weak demand side, including action to protect members from unfair or excessive charges and would involve two aspects: legislating to strengthen governance in trust based pension schemes by introducing new minimum governance standards and reporting requirements; and introducing new requirements for the governance of contract based pension schemes through changes to FCA rules.