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Risk Of Poor Value Workplace Pension Schemes, Says OFT

Defined contribution (DC) workplace pension schemes are too complex and offer savers little value for money, a report by the Office of Fair Trading (OFT) has said.

As a result, the OFT has reached an agreement with the Pensions Regulator on a set of measures to reform the £275 billion DC pensions market.

The OFT’s chief executive, Clive Maxwell, said: “It is important, particularly given that automatic enrolment is already under way, that these measures are implemented rapidly.”

Around five million people save into defined contribution schemes, with this number likely to increase by up to nine million savers in the next five years following the introduction of auto-enrolment.

According to the OFT report, employers often lack the knowledge to assess value for money when choosing a pension scheme for their employees. This problem is likely to grow as smaller employers with limited resources are required to provide schemes for their employees as a result of auto-enrolment, it said.

Clive Maxwell added:

Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. Whether people are starting pension-saving for the first time through automatic enrolment, or have already been saving for years, it is vital that they are saving in schemes which deliver good value for money.

The report identified around £40 billion worth of schemes that the OFT said were at risk of delivering poor value for money.

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