So, this is the past – but what of the future?
The OFT has concerns that the past could be repeated if there is no intervention with better governance and scrutiny of pension schemes on behalf of savers together with relevant information disclosure to the parties involved.
Route
It is revealed in the report that the OFT has agreed with the industry and The Pensions Regulator, that the following route map will be undertaken to seek to address the issues they have raised:
- Old or high-charging schemes: the concern on old and high-charging contracts and bundled-trust schemes will be picked up by the Association of British Insurers with an immediate audit to look at value-for-money issues.
- Small trust-based schemes: TPR has agreed to consider which smaller trust-based schemes are not delivering value for money and the department for work and pensions will consider the powers of TPR to make sure it can act accordingly.
- Governance issues: the ABI has agreed that its members will establish independent governance committees to recommend changes to providers and escalate issues to regulators where they see risks of poor outcomes for savers. The OFT recommends that the key elements of this governance solution should be embedded by the government in a minimum governance standard that will apply to all pension schemes.
- Information disclosure: the OFT recommends the DWP consult on improving transparency making it possible to compare schemes and therefore possibly assisting employers in the choice of schemes available to offer to their employees.
- The future: finally, the OFT recommends that the DWP consult on preventing schemes being used for auto-enrolment that contain built-in adviser commissions or that penalise members with higher charges when they stop contributing into their pensions.
In summary, some fairly strong findings and a lot of work to be done.
It is always easy to view such issues in a bit of a vacuum, so I do think it is important to add a bit of context.
The report itself sees 1981 as a bit of a watershed – the introduction of stakeholder pensions and the original introduction of a charge cap of 1 per cent (increasing to 1.5 per cent).
I remember that at the time the whole pricing of small schemes changed (rather than a prescribed set of product charges) the data would often have to go to the actuaries to calculate an AMC. At the time, we had significant discussions about the investment funds that could be included in the package due to the charging cap and the issue of price versus value was prominent.
In hindsight, it is very easy to look back to say that what went on pre-1981 was expensive and poor practice. I think it is generally accepted that stakeholder has been instrumental in bringing pension charges down.
