Price cap and mandatory default for auto-enrol schemes

All pension schemes that are used to automatically enrol workers must have a default fund by law.
The DWP has published guidance that sets out a number of design criteria:
The fund must have an objective
The fund should be suitable for the majority of workers covered by the scheme
The fund must be competitively priced with total charges “below the stakeholder price cap”
The fund should have a de-risking mechanism which mitigates against investment volatility
The fund should be well diversified over asset classes
The member should not be offered too many options
The default fund should be reviewed by the provider/trustees on a regular basis
These new rules contrast with the stakeholder pension default fund rules, which for prescribe that the default fund must operate lifestyling, starting no earlier than 5 years before retirement as standard.
John Lawson, head of pensions policy at Standard Life says: “For most pension schemes, the stakeholder price cap will not be an issue. Most new schemes in the UK are priced at 1 per cent or below, some as low as 0.25 per cent. The guidance also allows for innovate fund design within the sensible set of design criteria set out. This is a much better approach than the government designing default funds in legislation, and will allow employers and their advisers to create default funds suitable for their own workers.”