The DWP has stunned the pensions industry by confirming that it will not be proceeding with a charge cap this year, despite having said it would announce one early in 2014.
The announcement, which the DWP says is based on the need to ensure it comes to the right answer on the issue, has divided opinion in the industry, with some arguing it sends the wrong message to the public while others arguing it avoids the industry having to enter into a major new project at a time when it is straining to cope with auto-enrolment.
Towers Watson consultant David Robbins has highlighted the concern that the delay could be because of a split in opinion between the DWP and Treasury over whether there should be a cap, and if so at what level.
Chase de Vere auto enrolment specialist Sean McSweeney says the delay will enhance the perception of fat cat pension providers and advisers.
A DWP spokesperson says: “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.”
Robbins says: “As auto-enrolment pots will be small, the delay will not really matter for members. If the delay is because they say the timetable is too tight, then that is fine. But if it is because there are serious differences of opinion between DWP and Treasury then we could get a situation where a cap is not introduced until after the next election.”
McSweeney says: “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.
Hargreaves Lansdown head of pensions policy Tom McPhail says: “We 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.
“25,000 employers are due to automatically enrol their workers into a pension between April and July this year, which will already create a huge amount of work for those companies, their advisers and pension providers. The priority for the next few years should be to ensure that auto-enrolment is implemented efficiently and effectively, that as few employees as possible opt out and as many employees as possible who aren’t automatically eligible do choose to opt in. The imposition of a charge cap now would make all of these outcomes less likely.
“It is also important to note that in the early years of a pension, any beneficial impact of price cap would be negligible. The difference between a 0.8 per cent charge and a 0.6 per cent charge on a £1,000 pension pot for example, is £2. It is only in the later years, when the fund size grows, that any differences in pension charges become more relevant.”