The Department of Work and Pensions has launched a review of the charge cap on auto enrolment default pension funds.
The government department is calling for evidence from the industry and seeking views on the effectiveness of costs, charges and transparency measures in protecting pension member outcomes.
Those wishing to participate have until August 20 to submit their views.
This review follows an earlier commitment to review the scope and level of this charge cap and to re-examine permitted charging structures.
As a result of this review the DWP will be able to assess whether the downward trend in charges has continued and whether any changes are needed to protect scheme members.
In particular the DWP is looking for evidence on the following:
- the level and scope of the charge cap applicable to the default arrangement within certain Defined Contribution pension schemes used for Automatic Enrolment
- the appropriateness of permitted charging structures and the extent to which they should be limited
- options to assess take-up, and widen the use of standardised cost disclosure templates
The DWP said that, as part of this review, a 2020 charges survey would capture the full range of charges that are applied to qualifying schemes, including transaction costs, costs of any life insurance products or charges paid by employers.
It said it would also survey decumulation charges for both the member and the employer applied to those drawing down from their pension to provide insight into the developing occupational pension scheme decumulation market.
Launching the review pensions minister Guy Opperman says: ”Today’s call for evidence is an important step towards ensuring charging structures are fair, transparent and effective for the long term, delivering value for money for DC pension scheme members.
“I look forward to hearing constructive feedback from industry and other key stakeholders over the next six months, and to working closely together to secure retirement incomes.”
Commenting on this announcement Now: Pensions director of policy Adrian said welcomed this review. “We encourage Government to address simultaneously the auto enrolment charge cap and new ways to re-unite small stranded pension pots with their owners.
“These two issues go hand in hand and we owe it to the 10 million people that have been auto enrolled to address both charges and pot consolidation. However, any solution needs to support, not undermine, the financial sustainability of master trusts as that is in the members’ long term interests.”
Smart Pension director of policy and communications Darren Philp adds: “The introduction of the charge cap and increased transparency around transaction costs were both important steps in driving value for money and are driving better member outcomes.
“The DWP is right to issue a call for evidence so it looks at any potential changes based on a robust understanding of the impact of any change on members, employers, schemes and the wider competitive market.
“Master trusts have done the bulk of heavy lifting in delivering the government’s auto enrolment policy, but are now experiencing massive increases in the number of deferred members and dormant small pots. The DWP needs to make sure it understands the economics and cross subsidies that exist within schemes, particularly those with a high number of members with small pots, before making changes to the charge cap or charging structures.”
