Maria Nazarova-Doyle, Head of DC Investment at JLT Employee Benefits, says: We are very pleased with the Department of Work & Pensions’ decision to keep the DC default charge cap unchanged. Charges have been a red herring – they are already very low. The focus needs to shift to the quality of pension arrangements that these charges are covering and the assessment of their value for money. Value for money does not equal lowest cost, but unfortunately it has been often interpreted as such. The government’s support for the current charging level is sending a strong message to the industry to stop driving down fees at the expense of good member outcomes. If we want good quality arrangements, the charge cap should allow for these to be used within pension schemes.
Daren Philp, director of policy at The People’s Pension: The DWP’s decision to maintain the 0.75 per cent cap on default funds is understandable. While more still needs to be done to drive down costs and charges across the board it makes sense to review this in 2020 when auto-enrolment contributions will have reached eight per cent. We would certainly expect the cap to be reduced then, and would want the Government to extend it to cover the at retirement phase.
We welcome the DWP’s signal to look at charging structures. We firmly believe in having a common way to charge for pensions to ensure standardisation and comparability. The current system does not allow easy comparison and unnecessarily muddies the waters.
Steven Cameron, Pensions Director at Aegon said: The DWP has made the right decision in not reducing the auto-enrolment charge cap at this time. Many employers with large, stable workforces with high contribution levels will have secured terms well below the 0.75% cap. But smaller schemes with high staff turnover and lower contributions cost more to run.
Reducing the charge cap would lead to providers reviewing schemes and potentially turning some away as they may not be able to afford to continue to service them. It would reduce employers’ choice forcing many into NEST which has a charging structure that can actually be higher for those with modest pension savings. A reduction in the cap would have been a major own goal for the DWP and in many cases bad news for members.
Steve Webb, Director of Policy at Royal London said: This is a welcome and balanced decision by the DWP. The charge cap was only introduced a few years ago and sought to strike a balance between protecting members against excessive charges whilst allowing for diversity amongst pension providers and avoiding a ‘race to the bottom’. In practice, many millions of workers already face charges well below the charge cap, and automatic enrolment remains a hugely attractive way of saving for retirement. With employee contributions benefiting from tax relief and often matched by employer contributions, the current system is providing good value for money for the vast majority of pensions savers.
We also support calls for greater transparency and consistency over disclosure of transaction costs. It would be premature to expand the scope of the charge cap to include such costs when their nature and level is still not clear. We urgently need the adoption of simple and consistent measures of transaction costs so that trustees and governance committees can make sure that providers are providing value for money to scheme members”.
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