LONDON (Reuters) - Britain’s consumer affairs watchdog is to investigate so-called “defined contribution” pension plans, which could see up to 8 million new members over the next six years as part of a government drive to boost workplace saving for retirement.
Britain’s Office of Fair Trading (OFT) said on Thursday its study would focus on value for money and the size of pension pot savers end up with at retirement.
Defined contribution (DC) schemes are pension plans where the annual contribution is specified, but the future benefits are not guaranteed.
An employee’s pension is determined by the amount of money paid into the plan, the performance of the investments made with that money, and the cost of an annuity at retirement.
The government-backed auto-enrolment scheme, where people are required to opt out rather than opt in to retirement saving, could lead to 5-8 million additional workers being signed up for pensions, most of which are likely to be DC pensions.
Currently there are about 4 million members of DC workplace pension schemes, the OFT said, and the average contribution rates are 2.8 percent for employers and 6.6 percent for employees.
“This section of the pensions market therefore is expected to be of increasing importance and an area of potential consumer harm,” the OFT said.
The OFT study will look at pensions charges, pressure on smaller firms providing pensions, continued engagement from employers in setting up and managing pensions and barriers to switching between pension plans.
The Association of British Insurers, whose members run some of Britain’s biggest pension schemes, welcomed the OFT study and said the success of auto-enrolment was crucial to reducing the country’s savings gap for pensions.
Last week Britain’s financial watchdogs, the Pensions Regulator and the Financial Service Authority, launched a similar consultation, with proposals to govern pension contributions, investment decisions and protection of scheme assets.
The OFT said it would take six months to gather evidence for its proposals.
Reporting by Sarah Mortimer; Editing by Mark Potter