DWP promises to end high pension charges

DWP promises to end high pension charges

The Department of Work & Pensions has warned all schemes must axe high charges by the end of 2018 or it will legislate.

Just £900m in legacy defined contribution workplace pension schemes are now accompanied by charges of more than 1 per cent, according to work conducted by the Financial Conduct Authority and the Department for Work & Pensions.

A survey by the regulator and DWP a year ago found £25.8bn of assets in defined contribution pensions was exposed to charges of more than 1 per cent but a new study has shown this has now fallen by more than 90 per cent.

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It follows action by the FCA and the DWP to crack down on high costs and charges.

The DWP has said it will continue this work, claiming it will eliminate high costs and charges by the end of 2018, threatening to legislate if necessary.

Pensions minister Guy Opperman said: "No one that saves into a pension scheme should have concerns that their savings are at risk of being eroded by excessive charges.

"That’s why we are tipping the balance back in favour of consumers, who will now see their schemes delivering better value and increasing their income in retirement.

"By working closely with regulators and providers, we are committed to getting consumers the best possible deal."

Of the £25.8bn of assets covering 1.5 million pension pots, between £5.6bn and £8bn was potentially exposed to charges above 2 per cent, and nearly £1bn to charges above 3 per cent, with this group often including members with small pension pots worth less than £10,000.

Of the assets which remain subject to charges of more than 1 per cent, the FCA said some providers had set out reasons why their products offered value for money and the regulator said there had been instances of "valuable benefits" where this had been accepted.

But in other instances this had been challenged and was subject to discussions between the provider and the scheme's independent governance committee.

The £900m still subject to high charges also included a small number of providers, in both contract-based and trust-based schemes, where action would not be delivered until next year.

Duncan Glassey, founding partner of Edinburgh-based Wealthflow, said: "Charges are obviously massively important. The difference in impact between a 1 per cent charge and a 1.5 per cent charge can be quite frightening.

"In the US charges have been forced down dramatically because people are more aware but in the UK people have not been long-term investors for that long so the level of knowledge has been quite poor and the fund management industry has fed off of that quite heartily."