Large employers switching pension schemes have been key drivers in the reduction of annual management charges (AMCs) on pensions schemes.

However just 3.6% of employers have switched schemes according to the Office of Fair Trading (OFT).

Speaking at the National Association of Pension Funds (NAPF) Annual Conference in Manchester, Ed Smith, a director at the OFT, said: “If we look at the last decade, we see the headline AMC on new schemes coming down gradually from 0.8% in 2001 to 0.5% in 2012.

“We find that is being driven largely by large schemes switching in the market. This will be larger employers which are uprooting, deciding to change their pension scheme, moving to a cheaper scheme and driving that fall in AMC.

Nigel Waterson, chair of the board of trustees at Now:Pensions agreed that market forces were having some impact on charges: “Auto-enrolment is already working it’s magic in terms of governance, charges and transparency.”

But he believes there is a long way to go.

“On charges, I don’t think there would be half the fuss if there was a correlation between the level of charging and the level of performance of returns. Sadly, it is a random relationship, at best.”

Although the OFT report, Defined contribution workplace pension market study, showed that there is some competition on headline charges on AMC, Smith felt that there are two things that could improve.

Firstly, there is a lack of transparency around AMC charges.

“So even though AMC is fairly transparent, there is still some way to go towards getting a consistent AMC. [The OFT] specifically recommended on that, that providers presented a single-charge AMC which incoporates everything apart from transaction costs.

“It should be consistent across providers and be presented to savers as a pounds and pence figure on annual statements.”

Secondly, there is a problem with transactions costs. “[The OFT] had trouble getting information on transaction costs in a consistent way. And I think that in itself alerted us to the problem that maybe some of the employers, trustees or even providers themselves might not be getting consistent information on the transaction costs,” said Smith.

“So we have made a recommendation that the Financial Conduct Authority (FCA) undertake an exercise to make sure those figures are reported consistently in a methodical way and made public, specifically to people making decisions over pensions.”