DWP considers single annual charge for workplace pensions

“Enforcement of a universal charge structure based on a percentage of funds under management could have serious consequences particularly for this sector of the market, which relies on combination charges to make their pension model viable, making it more difficult to support certain employers to comply with their auto-enrolment obligations.” 

Michael Ambery, partner at Hymans Robertson, sounded a similar note. 

He warned that the new structure “may impact providers both in terms of ability to adopt this approach, impact the business plans and profitability of providers, and also may not increase engagement for members who arguably do not understand the charges and scheme costs that apply to their pensions”. 

However, he noted that if implemented, the universal charging structure “would enable greater and hopefully more consistent understanding [by members].

“Certainly it would enable comparison by members based on charges alone. Charges do not always represent value offered by a particular provider.”

Problems ahead?

Darren Philp, director of policy at Smart Pension, branded the DWP’s new call for evidence “premature”.

"While there is a debate to be had about how pensions are charged for, this needs to be considered in the round. We need to move away from constant piecemeal changes, which continually adds complexity,” he said.

Philp argued that moving to AMC-only pricing “will cause instability to exactly those schemes that have done all the heavy lifting in making auto-enrolment such a success”.

“All the main auto enrolment providers charge on a dual basis, which recognises the economics of running these schemes,” he said.

“We don’t want to go back to the bad old days where some providers just cherrypicked the profitable business. We should stop, pause and think, and let the market mature so all schemes are sustainable over the longer term.”

He suggested that the government should “fully understand” the “huge market distortion it would be creating it if implemented these changes in the near term, including for its own scheme, Nest”.

Smith also highlighted problems the change could pose to Nest. 

“In the case of Nest, the combination charge of 1.8 per cent on each new contribution and a 0.3 per cent AMC was designed to help the scheme pay back its government loan more quickly, and moving to a universal charge might make this much more challenging,” she explained.

A Nest spokesperson said that the master trust “will be looking to work closely with the DWP through the consultation”.

Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert