John Bridgeman: need for "a secure and economic" alternative

Pensions Industry "Offering Poor Value"

In a report, the OFT says problems are widespread and "radical changes" are needed.

The Director General of Fair Trading, John Bridgeman, said: "We found that all pensions have got something lacking. We developed a blueprint for what we think customers need in the future and no pension product gives it today, unfortunately."

The report says many personal pensions are poor value, and millions of people in company pension schemes lose out if they change jobs several times during their working lives. About 95% of people do not stay with one company for 30 or 40 years, and the average worker changes jobs at least five times.

"An employee who moves several times can find his pension up to 30% lower than someone who stayed in the same pension scheme," Mr Bridgeman said.

The OFT - a watchdog body for consumers - is calling for a new type of personal pension scheme which it terms a Designated Personal Pension, offering simplicity, flexibility and value for money.

This would replace highly-paid City fund managers - who buy and sell shares on a pension holder's behalf - with low-cost methods of tracking the movements of the stock market. This would mean lower charges and make products easier to choose.

Ann Robinson: defensive

A spokeswoman for the National Association of Pension Funds, Ann Robinson, denied that the industry was failing its customers.

"There is no such thing as a perfect pension system," she said. "There will always be degrees of ifs and buts in any system, but our system is a very good one for millions and millions of people."

Ministers have welcomed the OFT report. The Treasury Minister, Helen Liddell, has already shown her intention to get tough with the industry. On Thursday, the Government is expected to announce the biggest review of pensions provision since the creation of the Welfare State.

The OFT interviewed more than 3,800 people during its inquiry into the industry. It said it was easy to draw the conclusion that people's expectations of their final pension tended not to be realised.

"Only in the future will we really be able to tell whether the non-pensioners in our survey had realistic views of their income in retirement," it said.

The survey findings included:

• More than 45% of pensioners and non-pensioners either had no pension arrangements other than the basic state pension, or they did not know what the arrangements were.
• Among non-pensioners, a third of men and more than 50% of women had no pension arrangements.
• On average, individuals paid £40 a month into personal pension plans.
• One in six people had stopped paying into a personal pension plan at some point; not being able to afford the contributions was the most common reason.
• Nearly three-quarters of people in company pension schemes have to pay into the scheme; the average personal contribution was £55 a month.
• Of those who knew how much they and their employer contributed to their company pension scheme, half were in schemes into which a total of £120 or less was paid each month on their behalf.
• A third of full-time workers (34%) expected to receive between half and two-thirds of their pre-retirement income.
• The figures were significantly lower for self-employed and part-time people, at 26% and 20% respectively.
• A third of the pensioners interviewed said their total income in retirement was less than they had expected, while more than half said it was about the same.
• Some 20% of people who had only a personal pension said their pension arrangements "were not well-designed for their needs".
• More than three-quarters of people thought wrongly that all pensioners were entitled to the full basic state pension.