A 43-page consultation – published on 30 October and flagged by pensions minister Steve Webb in parliament last week – has put forward three options, one of which would be a ‘comply or explain’ model where charges higher than 0.75 per cent would have to be justified to the Pensions Regulator.
The other options are blanket caps of 1 per cent or 0.75 per cent. At a reading of the Pensions Bill on 29 October, Mr Webb strongly indicated that he would prefer the lower level.
Other proposals include extending the ban on consultancy charges to all qualifying defined contribution schemes, and a veto on differential charging between active and deferred members, backing up the OFT’s recent call to ban active member discounts in its investigation into the workplace pension market.
Frances O’Grady, general secretary of the TUC, said the move showed the government had listened to union and consumer calls for a charge cap and “better consumer protection”.
But Steven Cameron, regulatory strategy director at Aegon UK, warned that a rock-bottom cap, while attention-grabbing, could force some employers to use the government-sponsored Nest scheme. He added that the move could produce “poorer quality of services, less choice and loss of investment in innovation and development.”
In line with the OFT’s recommendations, Aegon UK is currently carrying out an audit of all pre-2001 workplace pension schemes to identify potentially poor-value schemes.
A spokesman confirmed that the firm has set up an independent governance committee, comprising both internal and external figures.
In her response to the consultation, independent pensions consultant Ros Altmann said the controversial 1.8 per cent initial fee for members enrolling in Nest should be reassessed during the consultation process.
Laith Khalaf, head of corporate research at Bristol-based Hargreaves Lansdown, said: “The main problem in the market, as identified by the OFT, is older schemes, in particular those set up prior to 2001. Employers with these schemes should review the market, as they can almost certainly get a better deal now. Individuals invested in these schemes should review their pension and consider switching to a more modern plan.”