Under defined contribution schemes, staff pay money into a pension fund during their working life, which is topped up by their employer. When they retire they use this fund to buy a financial product – known as an annuity – which provides them with an income in retirement. The annuity can be bought from the pension fund supplier, or on the open market, and it is lack of provided information on the second option which is worrying the regulator.

“Our review showed us that there is a lot of good practice in the industry now, and that this is found across a range of scheme types and sizes,” said the regulator. “However, the results also give us some cause for concern as members are not always presented with helpful and timely information as they approach retirement.”

The regulator’s review concluded that
• 57% of the schemes it examined had “some scope for improvement” in the standard of information they gave
• 30% were breaking the law, mainly by not giving out information to their members on their options at least six months before retirement
• 6% had serious problems with their literature or retirement processes
• 2% did not offer the open market option at all.

The regulator said that the key decision for someone retiring from a DC scheme is what to do with the cash that has been saved on their behalf. If they want to buy an immediate annual pension the law says they should be given the option of shopping around, both for the type of pension they want and the provider they prefer.

They should not merely be invited to accept a quote from whichever insurance company is running the DC scheme for their employer.

Just over 450,000 annual pensions were set up in 2008, according to the Association of British Insurers, but the size of pension on offer from insurers can vary by as much as 35% between the best and worst quotes for an identical sum of money – and the regulator’s survey found that only 23% of retiring members exercised their right to shop around.