The DWP had planned to cap the charges levied by default funds under qualifying defined contribution auto-enrolment schemes by April 2014.
However last week the DWP confirmed that implementation of a charge cap will now be delayed for at least a year while it goes over the plans in more detail.
Francois Barker, head of pensions for global law firm Eversheds, said the government’s original plan to impose a cap on defined contribution default fund charges by April 2014 had been too ambitious in terms of timescale.
In October the Office of Fair Trading stated charge caps create a risk of unintended consequences as it proposed a lighter regime that would require firms to justify charges of more than 1 per cent.
Set too high, the OFT warned a cap can become a target for providers but set too low, a cap can create incentives for providers to lower quality and/or impose charges elsewhere.
Darren Philp, head of policy for The People’s Pension, agreed that delay to the introduction of a pension charge cap was inevitable after the DWP’s impact assessment was red-carded.
Mr Philp said it was always going to be a struggle for the government to introduce a cap on pension charges this year and now the DWP should reflect further and deliver more fundamental reform of pension charges than just a cap.
He added: “We need full transparency and, most importantly, charges need to be standardised. We urge the government not to put this into the ‘too difficult box’. This is an important issue that affects people’s pensions and it is important that the government gets it right.”
Adviser:
Tom McPhail, head of pensions research for Bristol-based Hargreaves Lansdown, said delay was “inevitable” as the argument in favour of introducing a charge cap now was poorly made and the DWP’s impact assessment was “botched”.
He added that an OFT investigation last year concluded that a price cap was not desirable.
Reaction round-up
Gina Miller, co-founder of the True and Fair Campaign, said that capping fees would not cap consumer abuse.
She said: “The DWP proposals looked like a poorly thought through, rushed job that failed to deliver proper transparency on costs.
“Many pension costs remain hidden and are so complex that most people do not understand the impact on their savings. The only workable solution is total transparency of costs, at all levels, in one number. Only then will this industry riddled with vested interests stop pickpocketing savers.”