OFT workplace DC study too myopic on charges

Last week the body launched a market study, which will be completed by August, to examine whether defined contribution schemes are set up to deliver the best value for money for employees. 

But leading consultants have expressed concern about one of the study’s objectives, which is to investigate whether there is sufficient pressure on providers to keep charges low.

Paul Macro, partner at Mercer, stressed it was important the industry did not get “dragged into the mire” of thinking the cheapest scheme options are the best.

He said: “The focus is on charges because it is the one thing that can be measured today and the one thing that you can put in the spreadsheet.

“But what it doesn’t show is what level of service the members get from that, the type of investment it buys and whether the administration is accurate and timely.”

Missing a trick

Kevin LeGrand, principal and head of pensions at Buck Consultants, said he believed the OFT “might be missing a trick”.

He explained that details about whether administration at a scheme is poor and if contributions are collected and invested fast enough have just as big an impact as the issue of charges.

“I would have preferred if they had given themselves a broader remit and taken into account looking at annuities as well,” he said. “I know it is a bigger job but it is far more relevant as that is the true outcome of a pension scheme.”

The number of different organisations currently reviewing pensions is potentially a difficulty for schemes, said Danny Cox, head of advice at Hargreaves Lansdown.

“You have got the Department for Work and Pensions, the Treasury, the Financial Services Authority and the Pensions Regulator doing different pieces of work,” he said. “Having those four bodies all interacting doesn’t work particularly well.”

A clearer focus on legacy schemes and smaller trust-based ones could be the right approach, Cox suggested.

He added: “What the OFT investigation should be looking at as well as price are things like the quality of administration, the financial stability of the schemes concerned and crucially, member engagement.”

A spokesperson for the OFT said the study was in its preliminary stage and no conclusions had been reached, adding: “We will consider a wide range of evidence.”