The Government’s charges consultation has been thrown into disarray following a ruling by the Regulatory Policy Committee (RPC) that the DWP’s impact assessment is not fit for purpose.
The RPC, the independent body that validated impacts on business of government departments regulatory and deregulatory proposals, has highlighted serious potential flaws in the impact assessment, which shows the cost of increasing disclosure of charges as being more than eight times as expensive as implementing a charge cap.
A statement from the RPC says: “We note that Option 2, which requires an increased disclosure of information by pension providers, is expected to cost the industry £172 million, whereas Option 3, an industry wide charge cap in qualifying pension schemes, is only expected to cost the industry £19 million.
“This suggests that the IA’s estimates are significantly overstated in Option 2. It is very important that robust estimates are provided for all the options so that consultees are properly informed.”
The RPC also questions why, given that Option 2 and 3 appear to result in different benefits, namely Option 2 will improve transparency and disclosure of charges, while Option 3 will introduce of a charge cap, a combination of Options 2 and 3 has not been discussed.
Hargreaves Lansdown head of pensions research Tom McPhail says: “The DWP conducted this consultation in a tearing hurry, in fact they rushed it through so quickly that they failed to conduct their Regulatory Impact Assessment properly. This means that the entire consultation process is now in doubt and will probably have to be rerun. If the impact assessment figures were wrong then everyone involved in the consultation including employers, pension providers and the DWP’s own officials will have to reconsider their conclusions from the consultation.”
“This will almost certainly mean a delay in the introduction of any charge cap on pensions, if one is introduced at all.”
A note from the RPC says:
The IA is not fit for purpose. In particular, the evidence presented does not adequately demonstrate why Option 3 is considered to have a zero net impact on the pensions industry. In addition, robust estimates for all options need to be presented, so that consultees, and ultimately the final policy decision, are informed effectively.
Three options have been considered in this IA –
1) do nothing;
2) improve disclosure of pension scheme charges
3) set a charge cap on the default fund in qualifying pension schemes which are used for the purposes of automatic enrolment.