The government consultation on pensions charges closed yesterday.
The big pensions beasts were out in force to put their views across, and sometimes cross swords – through both new and old media, as well as at industry events and meetings.
Most weighed in to say the cap is either a bad idea or too low, while a lone (as far as I know) voice came from Legal & General which said the proposed 0.75% cap was too high, and that 0.5% should be enough.
Speaking to various players (from advisers and consultants to pension and platform providers, and then the fund managers) a picture is emerging of the pros and cons in pensions charges.
Firstly, everyone I have heard speak on the subject agrees that old schemes with overly high charges need to be rescued. But these are a small minority – both in terms of number of schemes and number of members.
Secondly, technology is dramatically reducing the cost of delivering pensions from fund managers, via an investment platform, through the pension providers and/or pension schemes. The margins are not what they used to be, and every 0.1% counts across administration, fund managers, communications and advice.
Thirdly, those businesses along the pensions food chain that have managed to streamline administration that is adaptable to a rapidly changing market (some have been caught out overinvesting in technology that is now dated and costly to update) are able to charge less. The others are not overcharging crooks, it simply costs them more to do the same job.
Fourthly, getting higher contributions in from members is more important than reducing charges. But once you have got the message on contributions across, then work on charges.
Fifthly, how much charges matter depends on how much members have in their pension. People with bigger savings pots will be hit hardest, but they might also be more willing to pay extra for more sophisticated fund choices. But they need to be reasonably sure these choices will deliver the extra retirement income that they are paying for.
Speaking to a few employers on this issue last week, it is clear they only have a limited budget to spend on charges. Most good employers want to limit the impact of charges on members. They have to balance this off against getting the best returns and pensions outcomes they can.
Personally, at this date in time, 0.75% seems about right and will shake up and wake those that need it. In time, we might look to go lower. But there should always be room for employers and advisers to argue the case of why a scheme has opted for a higher charge in order to deliver a better outcome for members.
What do you think?