The government has launched a consultation on draft regulations that confirm charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75 per cent annually.
The DWP says it will bring forward further rules and regulations to ensure that from April 2015 members of workplace personal pensions will not be charged consultancy fees for advice to their employer, and from April 2016 savers in all types of scheme will no longer be charged commission or consultancy fees.
The regulations include new governance standards that will apply across all money purchase workplace pension schemes. Under the changes, trustees of pension schemes will be required to design default funds in members’ interests, keep them under regular review and ensure that core financial transactions are processed promptly and accurately.
They will have to assess the value of costs and charges borne by those saving in a pension, and they must have a chair of trustees who will be responsible for signing off an annual statement on how the quality standards have been met.
The 0.75 per cent cap will cover all charges excluding transaction costs.
The draft regulations now open for consultation also include additional requirements to strengthen the independent oversight of mastertrust arrangements, which cover multi-employer occupational schemes.
Pensions Minister Steve Webb says: “Consumers have had a raw deal from the market for too long. A pension is one of the biggest investments you can make in your lifetime, yet many people have seen the savings they have put by all their working life whittled away by high or needless charges they may not even be aware of.
“We are taking strong action to restore confidence in pensions by capping charges, banning hidden costs and putting new standards in place to ensure everyone saving in workplace pensions gets the best possible value for money.
“With millions of people now saving through automatic enrolment, we want to give them confidence that their hard-earned money is working for them and not disappearing in opaque charging structures and ending up lining the pockets of the pensions industry.”
Association of British Insurers director general Otto Thoresen says: “Pension providers are committed to ensuring value for money, transparent pensions –average pension charges have been falling steadily over the last decade and are now at their lowest ever levels. The introduction of the ABI’s proposal for Independent Governance Committees will ensure that the best interests of workplace money purchase scheme members are protected.
“Implementation of auto enrolment, and the radical pension reforms announced in the Budget have created a challenging environment for pension providers and employers. The industry is working flat out to meet these challenges, to ensure that people can look forward to a financially secure retirement.”
Barclays Corporate and Employer Solutions head of DC investment consulting Lydia Fearn says: “We are encouraged by a number of the suggestions made including a greater scrutiny on transaction costs. We believe that a clear and comparable charging structure is the fairest framework for members and providers alike, driving competition and quality in the market, and we support any initiative for increased transparency in the industry.
“However, we are more cautious about any further downward pressure on the charges cap on default funds as focus will shift to achieving the lowest cost as opposed to the best outcome for members. To maintain the balance of value for money against product choice and innovation, the legislation should aim to ensure that a full and competitive marketplace is allowed to grow.
“For those thinking about retiring in or shortly after April 2015, the tight timescales and a lack of detail to date for individuals and employers means there may not be enough time for this group to plan sufficiently. That being said, it is important to help this group understand their options based on the information available, before they make a decision about how they want to turn their retirement savings into an income.”