Debbie Lovewell: Is pension charges cap enough?

On Wednesday (30 October), the government published its consultation setting out its long-awaited plans for capping pension scheme charges.

It proposed three possible options for the cap:

  • A charge cap of 1% of the funds under management, reflecting the current stakeholder pension cap;
  • A lower charge cap of 0.75%, reflecting the charging levels already being achieved by many schemes;
  • A two-tier ‘comply-or-explain’ cap, which would set a standard cap of 0.75% for all default funds in DC qualifying schemes, with a higher cap of 1% available to employers that explained the reason for charges in excess of 0.75% to The Pensions Regulator.

Anything that reduces costs for employees and helps to increase the value of their retirement pot is a good thing, and it seems that many in the industry agree. But some have also questioned whether the government’s proposal goes far enough, suggesting a cap of 0.5%.

A pensions professional, with whom I was speaking before the consultation was published, suggested that placing a cap on charges could stifle innovation around investment returns and mechanisms to reduce volatility, if all providers shift their focus to racing to offer the lowest charges. It is a point of view I certainly hadn’t considered.

Let us know what you think.

Debbie Lovewell
Deputy Editor