An audit collecting data on all workplace pensions sold before 2001, and all post-2001 workplace pensions with charges over 1 per cent per annum, will report back in December on what effect charges are having on clients.
In a progress update published today (31 July) the Independent Project Board responsible for overseeing an Office of Fair Trading-demanded audit of charges in legacy defined contribution pension schemes set out the scope of its work.
The IPB was set up in February following an Office of Fair Trading review in September 2013 that identified “around £30bn of savers’ money in… schemes with charges at risk of being poor value for money”.
The OFT had found that schemes “set up before 2001, when stakeholder pensions were introduced, have an average AMC which is 26 per cent (or 0.16 percentage points) higher on average than those set up on or after 2001”.
In January 2014 the government confirmed it would cap charges at 0.75 per cent for schemes that are used as default vehicles to auto-enrol staff. The cap would not apply to schemes that are not covered by auto-enrolment legislation.
IPB said it would look at stakeholder schemes set up prior to 2001, and schemes set up post-2001 that charge more than 1 per cent. It will also assess data submitted to the OFT covering schemes with charges above the cap that are not included in the audit automatically.
It set out the plethora of fees it would review, including exit fees, and how it would assess with-profit funds with both implicit and explicit costs. It also said it would seek to avoid unintended consequences of applying rules across disparate trust-based and contract-based schemes.
Frontier Economics, working under the direction of the IPB, has since March been issuing data requests to providers to model how each of the various charging structures determines the level of charges paid for each hypothetical saver.
The data will be reviewed in the coming months with a final report expected to be published in December 2014.
Pensions minister Steve Webb said: “It is right that the Independent Project Board looks closely at these arrangements. It is important that all schemes give savers the confidence that they are acting in their best interest.”
Carol Sergeant, chair of the IPB, said: “The final report will set out the charging structures of in-scope workplace pension schemes as well as showing the impact of these charging structures on different types of scheme members.
“The final report will include any IPB recommendations for industry-level actions that may be needed to address in-scope schemes assessed as having high charges taking into account any relevant benefits.”
