The Financial Conduct Authority confirmed final rules requiring firms operating workplace pension schemes to implement a charge cap for auto-enrolment default funds.
The final rules, published today (2 March), reiterated the FCA’s final rules and did not reveal anything new.
From 6 April, firms will have to cap the charges within default funds to 0.75 per cent per year of funds under management.
They will also be prevented from paying or receiving consultancy charges and paying commission for advice not expressly agreed by scheme members under the new rules.
Alongside this, the FCA said that firms will also be prevented from charging active and deferred members of schemes differently based on whether they are contributing to the scheme or not.
The new rules apply to contract-based workplace pension schemes. The Department for Work and Pensions has consulted on aligned measures for occupational, commonly trust-based, schemes for which the Pensions Regulator will be responsible.
Earlier today, the FCA announced that transaction costs on workplace schemes are to be reviewed, following a call from both the FCA and DWP for evidence, after the pensions minister Steve Webb cited fears of “nasty surprises”.
Final rules will require all contract-based occupational pension schemes from April this year to have in place an independent governance committees, which will be required to report annually on all costs and charges.
Christopher Woolard, director of strategy and competition at the FCA said: “It is important that those saving into workplace pension schemes get value for money and this is especially true for those who are not playing an active role in deciding where their money is invested.
“Schemes need to work effectively for members and the charge cap, alongside other new measures such as independent governance committees and transparency of costs, will help to ensure this going forward.”
In July last year, Adrian Boulding, pensions strategy director at Legal and General, predicted that there will now be three fund options to replace the default fund for auto-enrolment schemes instead of one set default fund that assumes a member is going to buy an annuity at retirement.