By . Daily Mail Reporter . PUBLISHED: . 00:57 EST, 19 September 2013 . | . UPDATED: . 19:43 EST, 19 September 2013 . The vast scale of Britain’s retirement rip-off was exposed yesterday after it emerged that workers are being deprived of £43million a year from their pension pots. Hidden annual fees are eating away at the savings of nearly 1.5million of those with old company retirement schemes. Higher charges for workers with cash in policies created before 2001 is leaving them far worse off than those in newer schemes – losing up to 40 per cent of their life savings in the worst cases. Losing out: Many workers are not getting value for money on their pension schemes, the Office of Fair Trading has found . But despite the extent of the . retirement scandal exposed by the Office of Fair Trading, the watchdog . has refused to cap charges – and instead told insurers they should put . their own house in order. It . had been hoped the OFT would demand a management fee ceiling of 1 per . cent per year on all company pension funds. However, even this would . mean employees losing the equivalent of 20 per cent of their total . entitlement over the course of a working lifetime. Tom . McPhail, head of pensions research at financial services company . Hargreaves Lansdown, accused the OFT of pulling its punches. ‘It’s a . start, but the OFT didn’t go far enough and these measures are weak,’ he . said. ‘They had an opportunity to really improve the way these giant funds are run on behalf of savers, and didn’t take it. ‘A . cap on charges would have been achievable for the industry, but they’ve . ignored it and asked insurers to sort it all themselves. ‘To be honest, it’s like putting the fox in charge of the chicken coop.’ The . OFT investigation looked into the £275billion of savings held by five . million people in company pensions which are invested in the stock . market – known as defined contribution schemes. Unlike . traditional final salary pensions, these are schemes in which employees . build up a personal pension pot of cash over their working lifetime, . which may then be used to buy an annuity to provide income in . retirement. Changes: Because of dropping numbers having private pensions, workers are to be auto-enrolled into schemes . The OFT . launched its probe because up to nine million more workers are being . enrolled in such pensions over the next five years, in line with the . Government’s ‘auto-enrolment’ plan to plug the private savings gap. Its . report found that the average annual management charge for newer . pension schemes was 0.62 per cent compared to 0.78 per cent for older . schemes – those taken out before 2001 when the Government legislated to . cut annual pension charges to help savers get better returns. 'Need for clarity': Pensions expert Ros Altmann says the current array of cost measures are confusing . Although these fees will seem small, their impact over decades of saving is deadly. A 0.5 per cent charge built up over an employee’s working life can slash a potential pension pot by around 11 per cent. A . 1 per cent fee can reduce retirement savings by around 20 per cent, but . the highest annual charge the OFT discovered – a punitive 2.3 per cent – . would slash a worker’s savings by 40 per cent. The . high fees are typically levied to cover the cost of running the fund, . such as paying for legal costs, software, administration and investment . transactions. Following its investigation, the OFT called for much greater transparency on charges. It . found as many as 18 different names for a pension charge, which it said . would baffle ordinary savers. The competition watchdog has ordered the . Association of British Insurers (ABI) to investigate these older schemes . and introduce a new, easy-to-understand charge – in pounds and pence – . for savers each year. However, it will not have to do so until December . 2015. New independent committees will also be set up in order to ensure savers get better value for money.It . recommends the Government consults on ways to improve the transparency . of costs and the quality of schemes in order to make it easier for . companies to pick pensions for their staff. In . its report, the OFT dismissed calls for a cap on the grounds that it . could distort the market by encouraging companies to make back lost . revenues elsewhere. From the beginning: how The Mail has covered the story in the past . Clive . Maxwell, chief executive of the OFT, said: ‘We believe these measures . are an important step in helping to ensure that savers get better . outcomes. ‘Given that automatic enrolment is already under way, it’s important they are implemented rapidly.’ Steve . Webb, Minister for Pensions, said: ‘We need to ensure those already in . pension schemes are getting good value for money, and will be actively . involved in the audit of pension schemes sold prior to 2001.’ The . watchdog also urged the Government to ban the practice of levying . higher charges to individuals who leave a pension scheme – when taking a . job at a different company, for example – but leave their savings . behind. They pay a higher annual fee compared to workers who continue with their monthly contributions. Consulting: Pensions minister Steve Webb has signalled the Government will investigate whether charges should be capped for auto-enrolment schemes. The Office of Fair Trading (OFT) has carried out a probe to make sure enough competition is being injected into the pensions market to benefit millions of new savers who are being brought into defined contribution schemes. What are defined contribution (DC) pension schemes? These are pension schemes where the amount of cash you are putting in is specified but the benefits you will reap when you retire are less clear. As well as the amount of contributions, the eventual size of the retirement income you will get with your savings pot depends on factors such as the performance of investments in the scheme as well as annuity rates. People buy an annuity when they retire and the rate they get sets the annual income they will receive for the rest of their life. There are several different types of annuity, depending on factors such as the state of your health and whether you want them to provide an income for just yourself or your spouse as well. Annuity rates can vary widely and shopping around to buy one could add hundreds of pounds to your yearly pension income. These rates have been in general decline in recent years as people live longer. Pensions experts have also put the drops down to side-effects of the Bank of England's efforts to kick-start the economy. Why is the OFT looking into these schemes? This type of scheme is seeing the biggest area of growth in the pensions market as the Government rolls out its landmark reforms to tackle concerns that people are not saving enough for their old age. More than one million workers have started saving into pensions as a result of automatic enrolment, which started last autumn with larger firms. Up to eight million more employees are eventually expected to start saving into a workplace pension scheme as a result of automatic enrolment and the vast majority will be saving into DC schemes. DC schemes have largely replaced pensions which give people a guaranteed retirement income such as 'final salary' schemes in recent years as firms have found these expensive to run. Report: The OFT has revealed its findings from a probe into the defined contributions pensions industry that involves millions . What issues with the market has the OFT previously raised concerns about? In its interim findings in July, the OFT flagged several aspects of the market which could hold back people's ability to get a good retirement income. Pension charges were found to be hard to compare in some cases because providers did not present them consistently. The OFT said it was also worried that several schemes may 'not have a realistic prospect' of growing large enough to generate value for those enrolled into them. It also raised concerns over schemes which have 'two-tier' charging structures, whereby people who have stopped making contributions into a particular pension pot, perhaps because they have changed jobs, end up paying higher annual management charges. What have the industry and Government been doing to make it easier for pension savers to get a good deal? The Association of British Insurers (ABI) has started publishing more tailored information on its website to help people choose the right annuity deal. The ABI now publishes 'specimen' annuity rates offered by its members, based on 12 examples reflecting different customer circumstances. The Government has also recently banned employers from offloading the costs of financial advice given to them to help them choose and manage a pension scheme on to their employees, in the form of extra 'consultancy' charges on workers' pension pots. Concerns had been raised that workers' pension savings could be eaten up by employers imposing such charges. What measures are open to the OFT when it carries out market studies? Options range from giving the market a clean bill of health to making recommendations to bodies such as the Government or making a referral to the Competition Commission. The OFT recently referred the payday lending industry for an in-depth investigation by the Commission as it felt the problems in the market were 'deep-rooted'.
Office of Fair Trading announced findings from its pension probe today .
£40bn-worth of .
savings could already be in failing schemes, OFT say .
OFT has made a string of recommendations to reform the pension market .
Campaigners: 'More must be done to prevent billions of pounds languishing'
By . Daily Mail Reporter . PUBLISHED: . 00:57 EST, 19 September 2013 . | . UPDATED: . 19:43 EST, 19 September 2013 . The vast scale of Britain’s retirement rip-off was exposed yesterday after it emerged that workers are being deprived of £43million a year from their pension pots. Hidden annual fees are eating away at the savings of nearly 1.5million of those with old company retirement schemes. Higher charges for workers with cash in policies created before 2001 is leaving them far worse off than those in newer schemes – losing up to 40 per cent of their life savings in the worst cases. Losing out: Many workers are not getting value for money on their pension schemes, the Office of Fair Trading has found . But despite the extent of the . retirement scandal exposed by the Office of Fair Trading, the watchdog . has refused to cap charges – and instead told insurers they should put . their own house in order. It . had been hoped the OFT would demand a management fee ceiling of 1 per . cent per year on all company pension funds. However, even this would . mean employees losing the equivalent of 20 per cent of their total . entitlement over the course of a working lifetime. Tom . McPhail, head of pensions research at financial services company . Hargreaves Lansdown, accused the OFT of pulling its punches. ‘It’s a . start, but the OFT didn’t go far enough and these measures are weak,’ he . said. ‘They had an opportunity to really improve the way these giant funds are run on behalf of savers, and didn’t take it. ‘A . cap on charges would have been achievable for the industry, but they’ve . ignored it and asked insurers to sort it all themselves. ‘To be honest, it’s like putting the fox in charge of the chicken coop.’ The . OFT investigation looked into the £275billion of savings held by five . million people in company pensions which are invested in the stock . market – known as defined contribution schemes. Unlike . traditional final salary pensions, these are schemes in which employees . build up a personal pension pot of cash over their working lifetime, . which may then be used to buy an annuity to provide income in . retirement. Changes: Because of dropping numbers having private pensions, workers are to be auto-enrolled into schemes . The OFT . launched its probe because up to nine million more workers are being . enrolled in such pensions over the next five years, in line with the . Government’s ‘auto-enrolment’ plan to plug the private savings gap. Its . report found that the average annual management charge for newer . pension schemes was 0.62 per cent compared to 0.78 per cent for older . schemes – those taken out before 2001 when the Government legislated to . cut annual pension charges to help savers get better returns. 'Need for clarity': Pensions expert Ros Altmann says the current array of cost measures are confusing . Although these fees will seem small, their impact over decades of saving is deadly. A 0.5 per cent charge built up over an employee’s working life can slash a potential pension pot by around 11 per cent. A . 1 per cent fee can reduce retirement savings by around 20 per cent, but . the highest annual charge the OFT discovered – a punitive 2.3 per cent – . would slash a worker’s savings by 40 per cent. The . high fees are typically levied to cover the cost of running the fund, . such as paying for legal costs, software, administration and investment . transactions. Following its investigation, the OFT called for much greater transparency on charges. It . found as many as 18 different names for a pension charge, which it said . would baffle ordinary savers. The competition watchdog has ordered the . Association of British Insurers (ABI) to investigate these older schemes . and introduce a new, easy-to-understand charge – in pounds and pence – . for savers each year. However, it will not have to do so until December . 2015. New independent committees will also be set up in order to ensure savers get better value for money.It . recommends the Government consults on ways to improve the transparency . of costs and the quality of schemes in order to make it easier for . companies to pick pensions for their staff. In . its report, the OFT dismissed calls for a cap on the grounds that it . could distort the market by encouraging companies to make back lost . revenues elsewhere. From the beginning: how The Mail has covered the story in the past . Clive . Maxwell, chief executive of the OFT, said: ‘We believe these measures . are an important step in helping to ensure that savers get better . outcomes. ‘Given that automatic enrolment is already under way, it’s important they are implemented rapidly.’ Steve . Webb, Minister for Pensions, said: ‘We need to ensure those already in . pension schemes are getting good value for money, and will be actively . involved in the audit of pension schemes sold prior to 2001.’ The . watchdog also urged the Government to ban the practice of levying . higher charges to individuals who leave a pension scheme – when taking a . job at a different company, for example – but leave their savings . behind. They pay a higher annual fee compared to workers who continue with their monthly contributions. Consulting: Pensions minister Steve Webb has signalled the Government will investigate whether charges should be capped for auto-enrolment schemes. The Office of Fair Trading (OFT) has carried out a probe to make sure enough competition is being injected into the pensions market to benefit millions of new savers who are being brought into defined contribution schemes. What are defined contribution (DC) pension schemes? These are pension schemes where the amount of cash you are putting in is specified but the benefits you will reap when you retire are less clear. As well as the amount of contributions, the eventual size of the retirement income you will get with your savings pot depends on factors such as the performance of investments in the scheme as well as annuity rates. People buy an annuity when they retire and the rate they get sets the annual income they will receive for the rest of their life. There are several different types of annuity, depending on factors such as the state of your health and whether you want them to provide an income for just yourself or your spouse as well. Annuity rates can vary widely and shopping around to buy one could add hundreds of pounds to your yearly pension income. These rates have been in general decline in recent years as people live longer. Pensions experts have also put the drops down to side-effects of the Bank of England's efforts to kick-start the economy. Why is the OFT looking into these schemes? This type of scheme is seeing the biggest area of growth in the pensions market as the Government rolls out its landmark reforms to tackle concerns that people are not saving enough for their old age. More than one million workers have started saving into pensions as a result of automatic enrolment, which started last autumn with larger firms. Up to eight million more employees are eventually expected to start saving into a workplace pension scheme as a result of automatic enrolment and the vast majority will be saving into DC schemes. DC schemes have largely replaced pensions which give people a guaranteed retirement income such as 'final salary' schemes in recent years as firms have found these expensive to run. Report: The OFT has revealed its findings from a probe into the defined contributions pensions industry that involves millions . What issues with the market has the OFT previously raised concerns about? In its interim findings in July, the OFT flagged several aspects of the market which could hold back people's ability to get a good retirement income. Pension charges were found to be hard to compare in some cases because providers did not present them consistently. The OFT said it was also worried that several schemes may 'not have a realistic prospect' of growing large enough to generate value for those enrolled into them. It also raised concerns over schemes which have 'two-tier' charging structures, whereby people who have stopped making contributions into a particular pension pot, perhaps because they have changed jobs, end up paying higher annual management charges. What have the industry and Government been doing to make it easier for pension savers to get a good deal? The Association of British Insurers (ABI) has started publishing more tailored information on its website to help people choose the right annuity deal. The ABI now publishes 'specimen' annuity rates offered by its members, based on 12 examples reflecting different customer circumstances. The Government has also recently banned employers from offloading the costs of financial advice given to them to help them choose and manage a pension scheme on to their employees, in the form of extra 'consultancy' charges on workers' pension pots. Concerns had been raised that workers' pension savings could be eaten up by employers imposing such charges. What measures are open to the OFT when it carries out market studies? Options range from giving the market a clean bill of health to making recommendations to bodies such as the Government or making a referral to the Competition Commission. The OFT recently referred the payday lending industry for an in-depth investigation by the Commission as it felt the problems in the market were 'deep-rooted'.
pension schemes, the Office of Fair Trading has those already in . pension schemes are getting OFT has revealed its findings from a probe into been raised that workers' pension savings could recommendations to bodies such as the Government