Defined contribution (DC) pension schemes will be scrutinised by the Office of Fair Trading (OFT) to assess whether they offer ‘value for money’, under a new market study launched today.

The investigation will look at whether competition among pension providers delivers low costs and high quality pensions for the six to nine million workers that will be enrolled into pension schemes by 2018 as a result of automatic enrolment (AE).

Ahead of the 2018 projection, which expects to see a rise of around £11bn in the value of annual contributions, the OFT will also examine whether there is sufficient pressure on pension providers to keep charges low and the extent to which information about charges is made available to savers, and what the barriers are to switching between schemes and a potential lack of ongoing employer engagement in setting up and managing pensions.

Furthermore, the study will look into whether smaller firms face difficulties in making pension decisions in the interests of their employees, and whether they receive appropriate help and advice in setting up and maintaining workplace pension schemes.

The news has been received by some industry experts with a level of caution. Society of Pension Consultants president Roger Mattingly warned against a culture of ‘cheapness’. “The OFT involvement is in keeping with the current activity surrounding charges but it would be counterproductive if such investigation led to ‘cheapness’ being the main driver especially, at a time when the governance surrounding pensions is being heightened.”

NOW: Pensions reinforced its concerns that wide gaps exist between the lowest and highest charging DC default funds among private employers, warning against their continual use. The firm continues to call for a kitemark code that could help employers find value for money schemes.

Its CEO Morten Nilsson said: “There are about 205,000 DC schemes in the private sector and there is currently a very real danger that smaller employers will use these older schemes for AE, potentially bringing millions of new pension investors into poor value default funds.

“We hope that the OFT study will help employers select an appropriate scheme for their employers, which will enable employees to save a pension pot which provides adequately for their retirement.”

The investigation is expected to end in August and the OFT will be working with the Department for Work and Pensions, The Pensions Regulator and the Financial Services Authority.

In addition, it will seek input from other key players including the National Association of Pension Funds, the Association of British Insurers, pension providers, trade bodies and those that represent employers and employees.

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