Personal Pension  

Warning over competition consequences of pension fees cap

A government cap on pension scheme charges could result in small being funneled into the National Employment Savings Trust due to hampered market competition, Deloitte has argued.

Andrew Power, insurance partner at Deloitte, agreed that a cap on costs would have the potential to ensure “high-cost schemes cannot survive and consumers do not have their pension savings whittled away by excessive charges”, but warned that the effects for small schemes could serve to reduce competition in the sector.

He said: “Price caps, which will largely impact small schemes, will reduce competition for many of the newer schemes that will come into effect under auto-enrolment. This may hinder competitive forces which would drive down costs and possibly leave Nest as the only option for smaller schemes.”

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Yesterday (9 September), Legal and General announced it was capping charges for auto-enrolment pensions at 50 basis points for investments in insured funds. John Pollock, chief executive officer of Legal & General Assurance Society, said the firm wished to make “our position clear” ahead of a government consultation on “maximum charges for auto-enrolment schemes”.

The news came on the same day FTAdviser sister title the Financial Times reported the government was considering enforcing a ceiling on the amount savers can be charged. Steve Webb, pensions minister, is thought to be pressing for a cap in certain ‘special cases’ in what would be a dramatic reversal of current policy, which focuses on enforcing increased transparency over charges in order to bring down charges through competition.

The government has faced increasing calls for pension charges to be capped, not least from the opposition Labour party.

Concerns over the privileged market position for Nest have previously been voiced by rivals, particularly in the wake of the government’s popular move to remove the restrictions on how much people could pay into the government-backed scheme from 2017.

B&CE, operator of The People’s Pension, warned of “conflicts of interest” that will threaten competition in the nascent market and demanded transparency over transfer pricing at the state-backed provider.

Jamie Fiveash, director of customer solutions at the firm, said: “It is not clear, based on Nest’s current two tier charging structure, at what charge Nest will take in transfers and how will this pricing be controlled?”