Personal Pension  

Gov’t sets out rules to cut pension costs by up to £100k

Gov’t sets out rules to cut pension costs by up to £100k

The government has laid draft regulations before Parliament to introduce the pension scheme charge cap on defined contribution workplace pensions, with the pensions minister stating new rules could leave savers £100,000 better off over the course of their working life.

The Department for Work and Pensions published its response to a consultation on workplace pensions, coinciding with the City watchdog’s final rules on independent governance committees.

A range of measures that were consulted on including capping charges in the default funds of auto-enrolment pensions at 0.75 per cent of funds under management as of April 2015, and banning consultancy charges from April 2015 followed by a ban on active member discounts and member-borne adviser commission from April 2016.

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The government also said it would review the level of the default fund charge cap in 2017 to see if it should be changed or extended to include some or all transaction costs.

In a written statement pensions minister Steve Webb said: “The next stage of the government’s work to ensure full disclosure of costs and charges throughout the value chain is also set out in today’s paper – with the plan to publish a joint call for evidence with the Financial Conduct Authority in spring 2015.”

“Over 5m people have now been automatically enrolled into workplace pension schemes. By 2018, 8 to 9m people will be saving for the first time, or saving more towards their pension.

“It is vital, therefore, that workplace pension schemes are run in the interests of members, whose savings will not be diminished by excessive charges.”

He added that for the average earner who are currently paying into a fund with a charge of 1.5 per cent, the new cap could save them around £100,000 over the course of their working life.

Over the next decade, the default fund charge cap will transfer around £200m from the pensions industry to savers. Some have put the figure far higher.

On the FCA rules, Mr Webb added: “Their rules, together with our regulations, will ensure that savers are protected regardless of the type of workplace pension they are saving into.

“Subject to Parliamentary approval, these draft regulations will be a major step towards ensuring a positive outcome for millions of people in retirement.”

Late last year, several industry heavyweights including outgoing Association of British Insurers director general Otto Thoreson and Graham Vidler of the National Association of Pension Funds issued fresh warnings on the potentially pernicious effects of the charge cap for occupational pensions.

Speaking in Parliament in early December during a committee meeting on progress in various reforms including auto-enrolment, Mr Thoresen said that the ABI position was clear that the 0.75 per cent charge cap “would have unintended consequences in terms of innovation in the market”.