A two-tier ‘comply or explain’ charge cap of 0.75 per cent rising to 1 per cent for employers who reported the scheme to the Pensions Regulator is one of three options unveiled in a Government consultation launched today.
The other two options are a higher charge cap of 1 per cent of funds under management or a lower charge cap of 0.75 per cent.
The government says charges will encompass a range of costs and fees levied on the scheme member for a range of services, including administration fees, contribution fees, active member discounts, and investment fess such as transaction costs.
The government says it is possible that any final cap could lie somewhere between the two levels suggested, depending on the evidence received.
The consultation will also consider measures to make it easier for employers to compare schemes. The consultation will help us to determine whether further transparency measures, alongside those detailed in the consultation, are necessary or desirable.
Financial Secretary to the Treasury Sajid Javid, says: “The government is determined to help hard working families and that includes making sure someone’s saving will deliver the biggest possible returns and not be eaten away at by a variety of charges and fees.
“As part of this plan, we will bring forward significant change to the pensions sector including a cap on certain charges, which should save many individuals tens of thousands of pounds.”
Minister for Pensions Steve Webb says: “The Government believes that enough is enough on charges. People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges. We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75 per cent per year.
“I’m confident that we will make the system fairer for anyone being automatically enrolled into a workplace pension and will finally address the issue of charges which has been neglected for far too long.”
JLT Employee Benefits chief executive Mark Wood says: “JLT Employee Benefits welcomes the Government’s initiative to cap pension charges on auto-enrolment. Capping is in everybody’s interest and is fundamentally a good thing, as it will transform pensions into a public utility. By ensuring that every penny paid into a pension works as hard as possible, we will build the public’s trust in pensions, which will ultimately encourage people to save more through their pension funds. With the current minimum contribution rate considered too low to afford pensioners a comfortable income, fostering a saving-for-retirement culture is a crucial foundation element of a sustainable pension system.
“Our view is that no-one needs to pay more than 0.5 per cent for a standard pension, so 0.75 per cent is a reasonable level that leaves some room for introducing innovation and choice. However, it is up to the industry to step up to the plate and make it work. To achieve this, we need to agree how to calculate AMC equivalents where there are contribution charges and flat rate charges. We will also have to ensure that legacy schemes can lower their costs as easily as possible and communicate the results of this action to their members effectively, so they understand the benefits.”