Lizzy Holliday, Head of DC, Master Trusts and Lifetime Saving at the Pensions and Lifetime Savings Association (PLSA): The PLSA supports the call for evidence on costs and charges in the defined contribution (DC) pension market.
“The charge cap on DC pension schemes is an important consumer protection, ensuring savers receive better value for money from their pensions. DWP’s findings are consistent with our own: in practice most DC schemes’ default funds operate well below the charge cap.
“We’re pleased that DWP recognises the work the pension and investment industries have undertaken via the Cost Transparency Initiative (CTI) to establish and promote new industry standards for cost reporting. Recently, the CTI published additional templates which will further help pension schemes drive value for money for their savers by allowing them to compare costs across their investments more easily.
“That doesn’t mean the pension industry is standing still. The PLSA is working with our members to achieve even better outcomes for all savers, including finding solutions to the small pension pots issue.”
Kate Smith, head of pensions at Aegon: The DWP is considering making a number of changes to the 0.75% charge cap for default funds of DC schemes used for auto-enrolment. The vast majority of workplace members invest their pension contribution in default funds and many scheme charges are comfortably below the charge cap, as evidenced by the 2016 charges survey. Providers are currently being asked to complete a new charges survey which is expected to show a downward trend. But this doesn’t necessarily mean that the charge cap should be cut.
“The DC market is currently vibrant and competitive, offering employers and their employees good choice and value. Continual innovation to support members’ saving and introducing new types of investments such as illiquids and infrastructure comes at a cost. Including transaction costs in the charge cap, is fraught with impracticalities, and capping these costs could impact on the types of default funds provided leading to lower member returns. Cutting the charge cap could have unintended consequences for members’ savings and the wider economy as a whole.
“Due to the devasting effect of the coronavirus crisis, and the expected economic downturn, we’re expecting to see a steep rise in the number of small paid-up pension pots, some of which are subject to flat fee structures. These can quickly erode the value of the members’ pot, and it’s something the DWP should quickly address.”
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