This morning FTAdviser’s sister newspaper, the Financial Times, revealed the DWP may be set to delay any pension charge cap until at least next year.
This followed a DWP consultation last year on the possibility of capping charges on auto-enrolment pension schemes, which prompted a storm of criticism amid concerns over a looming ‘capacity crunch’ and costs for its own default option, Nest.
Tom McPhail, head of pensions research at 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’s investigation last year concluded that a price cap was not desirable. Back 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.
Mr McPhail said the government should now set their sights on more important tasks.
He said: “We would urge the government to address the more immediate and serious problem of helping pension investors retiring today to convert their pension savings into a retirement income as effectively as possible.
“Far more value is being lost from the pension system at the point of retirement than would be saved through the implementation of a charge cap.”
Darren Philp, head of policy at 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.
Mr Philp said: “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.”
Gina Miller, co-founder of The True & 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.”
Morten Nilsson, chief executive of Now: Pensions, said providers charging top rates should remember this is just “a temporary stay of execution”.