The Office for Trading has ordered a crackdown on the pensions market after it warned that billions of pounds of savers' money is at risk of delivering poor value for money.
It warned that up to £40 billion worth of pension savings could already be in schemes which are delivering poor value or are at risk of doing so.
ITV News' Consumer Editor Chris Choi reports:
The OFT carried out a study into the £275 billion defined contribution (DC) workplace pensions market, to look at whether such schemes offer value for money, if there is enough pressure on providers to keep their charges low and what size of pension pot savers are likely to end up with at retirement.
The trading watchdog published a range of recommendations to shake up the pensions market to ensure that up to nine million people who will be saving into the workplace pensions scheme in the coming years do not sink their money into rip-off schemes.
The OFT said it was particularly concerned over the variation in the amount pension savers get charged.
Financial experts Hargreaves Landsdown researched the differences they could face.
On an average salary, saving over twenty years with a five per cent return and wages growing at two percent in real terms:
- A saver in a pension scheme that charges 0.5% would end up with a pot of £96,360
- A saver in a scheme that charges 1% would end up with £86,480
- A saver in a scheme that charges 2.3% would end up with just £75,370
As the figures suggest, savers could be nearly £20,000 worse off if they are signed up to one of the more expensive pension schemes.
The trading watchdog said the Government should consult on improving the transparency and comparability of pension schemes to make it easier for employers to choose a scheme for their workers.
The Government, whose automatic enrolment scheme is being rolled out to encourage more people to save for their later year, insisted they would act on the OFT's recommendations.
Anyone who wishes to speak to an independent pensions expert can call 0845 601 2923 or visit the Pensions Advisory Service website.