According to market theory, efficient markets thrive on competition. But as far as financial services in the UK are concerned – and the personal pension market in particular – it has been a case of less competition being more effective.

Throughout the post-war period, the accepted wisdom was that government would encourage long term-saving through fiscal measures - primarily the granting of tax relief on selected products. And beginning in the 1980s, another credo took shape - that competition between commercial providers would result in better deals for consumers. This idea was at the heart of Thatcherism, and had its full expression in the introduction of the personal pension in 1987. But both of these ideas have been steadily eroded since. We can chart the chipping away of tax relief through milestones such as Gordon Brown's withdrawal of relief on the dividends pension funds earn from their equity investments in 1997, to the cuts in relief for high earners through legislation last year. Yet tax relief may not be so important. In a study entitled Savings Sense, Ben Jupp and Steve Bee argued that relief, while important to higher rate taxpayers, did little to increase overall savings rates, merely skewing the savings market in one direction or another. When Labour minister John Denham - then in opposition - proposed a fee cap on funds in 1995, it was a recognition that previous tax incentives had largely been passed on to financial advisers. The government has realised that it cannot get to most UK citizens who have inadequate pensions by offering them fiscal incentives. As for competition, this theory did not take into account the issue of distribution. Pensions do not sell themselves. To get people to commit long-term savings into the stock markets and annuities, which they do not fully understand, more sophisticated persuasion is required. The pensions industry calls this advice, everyone else calls it selling. The providers of pensions had always recognised that their advisers needed to be rewarded with commissions by way of return, as wave upon wave of regulation made the life of advisers tougher. Far from improving the lot of consumers, the expansion of competition among financial advisers between 1980 and 2000 actually increased charges. The introduction of an annual 1% charging cap on stakeholder pensions in 2001 was the first step towards reducing this unwanted competition. Pension providers split into two groups; those that wished to continue to provide commissions at close to previous rates, and those that distributed on a wholesale basis through large actuarial consultancies. Those that continued to distribute through individual advisers found the model unaffordable, and have largely withdrawn from the market. But if stakeholder pensions started the demise of personal advice in pensions, the Retail Distribution Review has confirmed its death knell. From 2012, the abolition of commission on personal pensions will mean a massive reduction in the number of distributors, and their confinement to a small segment of the market that is wealthy enough to require, and afford, advice. The RDR is effectively an admission that the free market in pensions, most in evidence through the sale of personal pensions, is over. Instead of pensions salesmen we will have a system of auto-enrolment, in which workers are automatically signed up for a workplace pension, and have to actively opt out if they do not want it. Instead of personal pensions we will have a collective occupational scheme - the National Employment Savings Trust, or Nest. Competition did not work and we are left with the wreckage it wrought. Sorting out the debris of the past 25 years will be the job of those left behind.