Royal London group CEO Phil Loney says: “This is a lacklustre policy announcement. It is disappointing that in the wake of the Chancellor’s inspirational reforms to the “at retirement” market, dropping of the need to buy annuity, that today we are back to the same old price-capping policy options. A price cap will do very little to improve competition in the workplace pensions market. It will fix the charges that members pay at the level of the cap. The promise to review the level of the cap in 2017 means charges could reduce further in future but they will not reduce at the rate that would be seen if the market was truly competitive and open to active switching.”
Aegon managing director, workplace solutions Angela Seymour-Jackson says: “We welcome the clarity today’s announcement gives on the level of the price cap. Bringing in the change from April 2015 will allow providers, advisers and employers to plan ahead while continuing to make a success of auto-enrolment.”
Barnett Waddingham senior consultant Malcolm McLean says: “A 0.75 per cent cap will obviously limit the ability of employers to choose a scheme that may well have higher charges but delivers far better outcomes for their staff.
“On the commission ban, this will be seen as a huge blow to advisers, which some estimates suggest could cost them £150 million and 1,000 jobs.
“Of the information currently available it is not clear whether schemes that have already been auto-enrolled will have to apply this cap, and of course there is still uncertainty as to what the 2017 review will bring.”
Standard Life managing director, adviser & workplace Barry O’Dwyer says: “The focus must continue to be on the best outcomes for scheme members. Now that we have clarity over charges we can concentrate on helping employers engage with their employees on other vital factors that can have the biggest impact on their final outcomes at retirement. Investment fund selection, fund performance and the level of employee and employer contributions can all make a huge difference.”
Chase de Vere auto enrolment specialist Sean McSweeney says: “We are concerned that a cap at 0.75 per cent, while reducing costs for employees, might disadvantage them significantly in other ways. With a 0.75 per cent charge cap providers will need to put aside additional capital reserves. We believe this could lead to them being even more selective about which companies they’ll offer terms to and also providing a reduced level of service. This could result in employees being faced with less choice, inferior products and a lack of ongoing service.
“While it is easy to claim that cheaper is always better, we would have liked a cap initially set at 1 per cent, with an industry expectation that new schemes are likely to charge significantly less than this anyway.”
Pinsent Masons pensions lawyer Simon Tyler says: “The exclusion of transaction costs from the charges cap is sensible. Transaction costs can fluctuate dramatically as managers react to changing markets. Transparency over transaction costs is a better approach than fettering managers’ transactions.”
Capita Employee Benefits head of DC consulting Gary Smith says: “Larger employers currently tend to enjoy a much lower charge than this. So, the 0.75 per cent charge cap may mean that it becomes a ‘target’ for pension providers to work toward as opposed to a maximum threshold that should not be exceeded.
“Given the recent announcement that those approaching retirement will receive guidance – under the ‘guidance guarantee’- and, as the delivery of this guidance will be either from the trust or the provider, it may be that larger employers see their charges rise to accommodate the cost of this new duty.”