The government’s proposed 0.75% cap on pension charges could be delayed for a year until April 2015.
The introduction of a cap was originally intended for April 2014, which aimed to protect millions of employees from high fees, after being auto-enrolled into their organisation’s pension scheme.
A Department for Work and Pensions (DWP) consultation on a pension charges cap closed on 28 November last year and was split into three options, with a cap on charges above 0.75%.
The delay could mean implementation will go beyond this government and into the next Parliament.
In December, the Regulatory Policy Committee at the Department for Business ruled that the DWP’s impact assessment on a pension charges cap was ‘not fit for purpose’.
A DWP spokesperson said: “This is an important and complex consultation that requires our proper consideration to ensure we get it right and we will confirm a publication date in due course.”
Gregg McClymont, shadow pensions minister, added: “Capping pension charges would help families in Britain that are facing a cost-of-living crisis. Labour called for a cap on pension charges last year, but regrettably the government failed to act and now ministers seem to be in full scale retreat.
“The government must explain why they are kicking ‘rip-off’ pension charges into the long grass. Is it chaos and disarray within government, or have ministers caved into the vested interests of the fund managers and pension giants that are accused of slicing and dicing the savings of hard-pressed British savers?”
We welcome this more practical and pragmatic approach to implementing the proposed changes. We have always supported the principles of lowering costs and increasing transparency to deliver better outcomes for scheme members. However, the original timings felt to us a bridge too far in a year when the industry was always going to be stretched to capacity.
The priority for 2014 for the entire pensions industry needs to be the successful implementation of auto-enrolment for the 30,000+ SMEs that stage this year.
We support a more realistic timescale that allows our clients the time to plan for any changes that they may need to make.
Hargreaves Lansdown would welcome a delay. The argument in favour of introducing a charge cap now was poorly made; the DWP’s Regulatory Impact Assessment was botched and the OFT’s exhaustive investigation of occupational pension pricing last year concluded that a price cap was not desirable.
In the meantime, we would urge the government to address the more immediate and serious problem of helping pension investors retiring today to convert their pension savings into a retirement income as effectively as possible. Far more value is being lost from the pension system at the point of retirement than would be saved through the implementation of a charge cap.
A delay in the proposed cap on workplace pension charges reflects badly on both the pensions industry and the government.
This will enhance the perception of many people that pensions have excessive charges, which rip off members for the benefit of fat cat pension providers and advisers.
We agree that too many company pension schemes offer poor value to employees. However, we did have serious concerns that the proposed charges cap, which if set too low could have unintended consequences that would be detrimental to both employers and employees, including them having less choice, inferior products and a lack of ongoing service.
We still support the concept of a cap at 1%, with many schemes charging significantly less than this. In the meantime it is the responsibility of the government, pensions industry and financial media to highlight where charges are excessive and take steps to address this.
This delay makes sense as the pensions industry has bigger fish to fry with the thousands of small companies who must auto-enrol their staff into a pension this year, this may be the real reason for the delay.
The proposed cap on fees is a bit of a blunt instrument in that it does not address the fundamentals of what really adds value to a scheme member’s pension outcomes. Trustees and companies need to understand that capping charges may not result in the best possible final pension for scheme members.
The government’s original plan to impose a cap on DC default fund charges by April 2014 was ambitious in terms of timescale. Rather than rushing through legislation, delaying implementation will hopefully give the government time to consider the detail and get it right.
It is important that people have a decent level of savings for their retirement. However, low charges alone will not guarantee this. It is also essential that pension schemes have effective governance, clear communications and suitable investment options. And, of course, low charges will not greatly improve the funds available for a person’s retirement if the amount of money paid into their pension is insignificant in the first place.
Could the delay have something to do with the fact that many larger employers have solved the funding of the costs related to their AE introduction in the run up to RDR by utilizing commission paying 1% charged pension contracts that have a 2-year clawback. By the time a cap is introduced those clawback terms will be complete and the Employee Benefits Consultants well remunerated for the work undertaken. If the cap had been introduced this year it could have created a massive clawback problem as providers rushed to reissue contracts. I wonder what sort of lobbying has been taking place in recent months……..
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