The Office of Fair Trading has targeted charges, governance and small schemes in its recommendations for reforming defined contribution (DC) saving.
In its final report on the workplace DC market, the OFT outlined agreements made with The Pensions Regulator (TPR) and the Association of British Insurers (ABI) on improving weaknesses in current DC arrangements.
The OFT found that £40bn is currently invested in legacy arrangements and small trust-based schemes that may not provide value for money for savers. It also highlighted concerns over complexity and governance (PP Online, 19 September).
In order to tackle old, high-charging schemes, the ABI and its members will conduct an urgent audit of legacy contract schemes, which will be overseen by an independent project board.
Independent governance committees will also be established for contract schemes.
The OFT said duties of the new governance boards "should be embedded by the government in a minimum governance standard that will apply to all pension schemes.
Meanwhile, TPR has "agreed to take rapid action" to assess the efficiency of smaller trust-based schemes that may not be delivering value for members. The Department for Work and Pensions (DWP) will consider whether new enforcement powers are needed to deal with the issue.
The OFT has also called for an end to active-member discounts and in-built adviser commissions in AE schemes. DWP should consult on this, as well as improving transparency and quality of information on charging.
Although the concerns identified by the report meet the requirements for a Market Investigation Reference (MIR) to the Competition Commission, the OFT said it would not be appropriate in this instance "in light of the fact that there are steps in place to address the competition concerns". This decision will be open for consultation until 31 October.
The DWP said it has already taken steps to protect members through its ban on consultancy charging for AE and powers to set minimum quality standards.
Pensions minister Steve Webb said: "Workers who put their hard-earned cash into a pension must get a good deal.
"This report outlines further important ways to help consumers, and we will act on its recommendations.
"In particular, 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."
Webb confirmed the department will consult "shortly" on minimum scheme standards and charging.
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.