The Office of Fair Trading (OFT) and The Pensions Regulator are to shake up the defined contribution (DC) workplace pensions market to ensure savers get value for money.
After investigating the sector, the OFT found weaknesses that "created a risk of savers losing out", from old and complicated pension schemes having expensive charges.
With the number of people saving into DC pension schemes set to nearly triple to 14 million over the next five years as auto-enrolment into workplace pensions becomes compulsory, the OFT wants it to be easier for all employers to put in place schemes that will be of most benefit to their workers.
To improve the market, the OFT has got the Pensions Regulator to assess which smaller schemes are not delivering value for money and to consider strengthening enforcement powers to tackle the problem.
Old and expensive schemes run by members of the Association of British Insurers will also undergo an immediate audit to provide a breakdown of the charges and any benefits associated with them. This will be overseen by an independent board.
The OFT has also recommended the DWP consult on improving the transparency and comparability of information about the cost and quality of schemes in order to make employers' initial choice of scheme easier.
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It suggests the DWP look into preventing schemes being used for auto-enrolment "that contain in-built adviser commissions or that penalise members with higher charges when they stop contributing into their pensions".
Value for money
Clive Maxwell, OFT chief executive, said: "Whether people are starting pension-saving for the first time through automatic enrolment, or have already been saving for years, it is vital that they are saving in schemes which deliver good value for money."
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, said the reforms do not go far enough: "The governance measures proposed are weak and the missing link is getting people engaged with their pension savings. No one looks after your money as well as you do and the fundamental problem with the governance of workplace pensions is that someone else (your employer) is choosing your pension for you.
"Some employers do a good job but inevitably not all do. In the long run where we need to get to is to use the efficiencies of setting up group pensions through the workplace and then put individuals in control of their own retirement savings."