Yesterday (and I write this on the 20th of September 2013) the office of fair trading announced some new proposals on how individuals saving for their future financial security and using pensions to do so can be treated in a fairer way.

It’s never been more important time for the Office of Fair Trading to do this. Auto enrolment will mean that millions more employees will be saving into pensions for the first time in years and whilst this will hopefully engage more people to save for their financial futures however there is still a job to do to ensure that we all are engaged with this. Rebuilding trust in the pensions industry is part of this puzzle and hopefully the Office of Fair Trading proposals will do this.

The Office of Fair Trading report talked through a number of issues relating to saving in a pension. However one of the main aspects they highlighted was the high charges on some pension schemes.

The Office of Fair Trading estimated that the schemes (where money is held in old high charging schemes) account for over 10% of the total market (£30 billion of a £275 billion market)

In addition to this the Office of Fair Trading found that individuals who have money invested in smaller trust based schemes (an additional £10 billion) are at risk of not receiving value due to the ways the trustees (the individuals who are responsible for looking after the money in these type of schemes) not having the skills, time and knowledge to give value to the individuals within the scheme.

There is some call for a cap on pension charges and personally I’m a fan of that idea. However on  this occasion the Office of Fair Trading stopped short of recommending a cap on charges.

Instead they have recommended that both the Pensions Regulator and the Association of British Insurers get more involved in assessing the value of smaller trust based schemes and the large historic schemes respectively.

High pension charges can make a huge difference to the pension pot you eventually accumulate and therefore the income you receive from your scheme.  Also the most expensive annual management charges on the most expensive pension schemes are over 4 times more expensive than the cheapest.

However this raises a question. What can we do as individuals to ensure that we are not in one of the more expensive (and more importantly low value) schemes, how do we work out whether the scheme we’re in is expensive and what can we do about it if we find out we are in one of these schemes.

The first step is visibility. If you’re like most of us it’s likely you’ve got a few schemes from various jobs you might have had over the years.

Contact the pension providers and ask them to clarify the charges. Now it’s important to gather all the other pertinent information too including the funds you’re invested in, whether any guarantees apply to your particular scheme and whether there are any penalties if you do decide to transfer this scheme to a provider with lower charges.

I’m currently working on building a spreadsheet template that you can use to get this information and I’ll be posting this on Common Sense Money in due course.

So, you’ve got the information from your pension schemes. The next step is to ensure that you can translate this information into plain English so that you can make some decisions….and that’s a subject I’m going to cover off in a later entry.