Out-Law News | 17 Jan 2014 | 4:58 pm | 2 min. read
The Financial Times reported that the planned reforms would not now be finalised until next year at the earliest, and may not even be introduced in the current Parliament. The plans have been championed by Pensions Minister Steve Webb despite opposition from parts of the pensions industry, and the Office of Fair Trading (OFT) in its own investigation into the defined contribution (DC) pensions market.
Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com said that the news would "come as a surprise" to many in the pensions industry given Webb's passion for the proposals. However, he said that "some breathing space to try and get the cap right" would be "no bad thing".
"It looks like the Government has realised that getting the cap just right is a tricky problem," he said. "If the cap is too high, pension savers won't be protected – and actual experience or fear of high charges can put savers off pensions for life. But a low cap risks forcing providers to cut back on quality of service and superior investment performance, which come at a price."
"It is also a matter of timing. It's not ideal to make a significant change like capping charges just when a very large number of small and medium sized businesses are in the middle of setting up pension schemes for the first time," he said.
The Government set out its proposals for capping AMCs on pension schemes used for automatic enrolment in October. It included three proposals for a charge cap: 0.75% or 1% in all cases, the latter reflecting the cap that applies to charges on stakeholder schemes; or a standard cap of 0.75% which could be increased to 1% if the employer could justify the need for higher charges to the Pensions Regulator. The cap as proposed would have initially applied to employers who started auto-enrolment from April 2014; and would then have been extended to those who started auto-enrolment earlier.
In September, the OFT decided against recommending the introduction of a cap on scheme charges for a number of reasons, including the "unintended consequences" of setting a cap too high or too low, as part of its DC pensions market report. Instead, the consumer protection regulator reached an agreement with the Association of British Insurers (ABI), which is carrying out an audit of all workplace pension schemes sold before 2001 and all those sold after that date with an AMC higher than 1%.
Pension scheme charges have fallen in recent years, with the average charge on a new scheme now at around 0.51%, according to Government figures. However, the OFT has estimated that over 186,000 pension pots with assets of £2.65 billion are subject to an annual charge of above 1%.
A spokesperson for the Department of Work and Pensions (DWP) told Out-Law.com that it would confirm a publication date for the response to its consultation, including details of any next steps, "in due course".
"This is an important and complex consultation that requires our proper consideration to ensure we get it right," the spokesperson said.