U.K. insurers agreed to audit some retirement plans as part of a settlement with regulators reviewing the £275 billion ($442 billion) market for defined contribution workplace plans.
Fees for the plans are too high and not always transparent to consumers, the Office of Fair Trading said in a report Thursday. The Association of British Insurers agreed to conduct an immediate audit of older and high-charging contract and bundled-trust schemes, containing about £30 billion of savings, to ensure participants understand the plans.
The OFT wants “to see changes in months rather than years,” Clive Maxwell, the regulator's CEO, said at a news conference Thursday. “We can't rely on competition to provide best value for people.”
The regulator began an investigation into defined contribution workplace plans in January. Currently, about 5 million Britons are part of employment retirement plans with that number expected to rise to 9 million by 2018 when the U.K. government's automatic pension enrollment program is completed, the OFT said.
“We agree with the OFT that it is important to review charges to ensure they represent good value for money for today's employers and savers,” Otto Thoresen, the ABI's director general, said in a statement. “Pension providers have agreed to an audit of all legacy and higher charging schemes to ensure any problems can be sorted out.”
Charges in defined contribution pension plans “are coming under close scrutiny from several directions,” Zoe Lynch, a lawyer at Sacker & Partners, said in an e-mail. “But the widely expected recommendation of a cap on charges has failed to materialize.”
The U.K. government introduced automatic enrollment in October 2012 to encourage employees to save money for retirement.
The National Association of Pension Funds, which represents U.K. workplace retirement plans and their members, said the report didn't go far enough to give companies more choices of pension plans to offer their employees.
“We would have preferred a clear direction that employers have a choice — they should either be prepared to provide governance themselves or use a master trust arrangement,” Joanne Segars, NAPF's CEO, said in a statement. “The proposal to have governance as part of the provider risks fudging the issue and leading to potential conflicts of interest.”
