Aegon is calling for the DWP to make sure its Autumn consultation on possible price caps for auto-enrolment schemes reflects lessons learnt from stakeholder pensions.
Under auto-enrolment, millions of individuals will be auto-enrolled into a pension for the first time. The majority are expected to make no active investment decision and as a result be invested in the scheme's default fund. The DWP is understood to want to ensure all such members benefit from competitive charges, but they have concerns that some ‘legacy' schemes with charges above those typical in today's market, could be used for auto-enrolment.
Steven Cameron, Aegon's Regulatory Strategy Director said:
‘We all have an interest in making sure individuals who are auto-enrolled and invested in a scheme's default fund receive good value for money. The OFT's DC workplace pensions review will provide a fact-based insight into charge levels within schemes that may be used for auto-enrolment, including so called ‘legacy' schemes. We hope the DWP will await the OFT's findings to make sure its approach is proportionate and targeted at addressing outliers.
‘Price caps may have surface attractions but they can also lead to unintended consequences which can be to the detriment of consumers. When stakeholder pensions were introduced, one unintended consequence was margins to pay for advice were squeezed, making it very difficult for individuals to get pensions advice.
‘This time round, it's important we don't unintentionally reduce consumer choice, therefore, any cap should be restricted to situations where an individual has been automatically enrolled into the scheme's default fund.
‘Any extension of price capping to situations where consumers make active choices, for example on investments, could do more harm than good. This would stifle innovation and discourage member engagement, which we'll need if we're to build on auto-enrolment and deliver adequate income in retirement for many.
‘One choice members can make is to seek advice. This means any cap must not prohibit members from agreeing to Adviser Charging deductions.'
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