The Department for Work and Pensions’ (DWP) recent publication of its plans for improving workplace pensions has brought welcome clarity to the market, but also the prospect of further regulation.
As well as significantly beefing up defined contribution (DC) schemes’ governance requirements, the proposals also clamp down on the costs of auto-enrolment schemes with a 0.75% cap on administration charges and a ban on additional charges for deferred members and commission payments.
The proposals are a reaction to the six to nine million new savers expected to be brought into DC pension schemes through auto-enrolment by 2018 and should come into force in April 2015, except the ban on commission, which will begin in April 2016.
Although no doubt beneficial to scheme members, the new rules will not take the size of schemes into account. This will be of concern to small and medium-sized employers with their own trust-based schemes, which they might be forced to close because of the increased administrative burden.
Larger employers may also have concerns about the charges cap and banning of commission.
Those with schemes that charge more than 0.75% may need to incur the cost of renegotiation or even change scheme providers. The ban on commission will mean that employers will have to either pay for advice or do without it.
Employers may also find that the charges cap results in them having to pay for middleware services, such as payroll integration, that were previously provided free of charge.
However, there is good news for employers. The proposals include requirements for greater transparency and standardised comparisons of charges.
This will certainly make it easier for employers to compare providers quickly and assess whether they and their employees are getting a good deal.
Thibault Jeakings is a pensions lawyer at CMS Cameron McKenna