The UK Office of Fair Trading (OFT) has today (17 January 2013) launched a market study to examine whether defined contribution workplace pension schemes are set up to deliver the best value for money for savers.
A new law that came into effect last October means that every employer must automatically enrol workers into a workplace pension scheme, unless workers choose to opt out of the scheme. Automatic enrolment is being staged in over the next six years and will be fully phased in by October 2018, meaning that an additional six to nine million workers will be enrolled in a workplace pension scheme by this time.
Focus of the OFT’s market study
The OFT’s market study will focus on value for money and the size of the pension pot available to savers upon retirement. Specifically, the OFT will consider the following:
- How pension providers compete with one another and how the market may develop over time;
- Whether there is sufficient pressure on pension providers to keep charges low and the extent to which information about charges is made available to savers;
- Whether smaller firms face difficulties in making pension decisions in the interests of their employees;
- Whether smaller firms receive appropriate help and advice in setting up and maintaining workplace pension schemes; and
- Barriers to switching between schemes and a potential lack of ongoing employer engagement in setting up and managing pensions.
The OFT will liaise closely with government, the Pensions Regulator and the FSA during its planned 6-month investigation. It will be garnering input from providers, advisers and employers as well as from trade bodies and employees’ representatives. The FSA has previously conducted a consultation process on automatic enrolment, which resulted in changes to conduct of business requirements.
The outcome of the market-wide review may include enforcement action against potentially anti-competitive behaviour, recommendations for changes in law or voluntary codes, educational campaigns or referral of the sector for further investigation by the Competition Commission (which has power to order further remedies).
BLP’s leading practices in competition, funds, financial services regulation and pensions are well placed to advise on every aspect of the investigation and its potential impact. We are currently advising a core participant in the Competition Commission’s audit sector enquiry, and a member of our team has previously worked at the FSA, where he advised on the FSA’s proposals for the regulation of auto-enrolment schemes, which will be a focus of the OFT’s new enquiry.