Pensions minister Steve Webb has confirmed his proposed pensions fee cap, due to come into force from April, will by delayed by at least a year, stating it would “only right and fair to give employers a minimum of 12 months’ notice of the changes”.
Under the proposed cap, legislation which Mr Webb is pushing forward under a previous promise of a “full frontal assault” on excessive pension fees, no pension operator could charge more than between 0.75% and 1% annually towards anybody who has been automatically enrolled into a pension scheme. Under current rules, certain (primarily older) schemes are charging up to 2.3% annually in management charges.
Pensions minister Steve Webb, alongside financial Secretary to the Treasury, Sajid Javid, has been committed to tackling higher pension charges for a number of years. At the time of the initial pension fees cap consultation last November (2013) Mr Webb stated:
“The government believes that enough is enough on charges. People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges. We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75% per year.”
The pensions minister continued:
“I’m confident that we will make the system fairer for anyone being automatically enrolled into a workplace pension and will finally address the issue of charges which has been neglected for far too long.”
Mr Webb’s continued insistence that members of the public are not ripped off by excessive pension charges goes hand in hand with the government’s wish to increase transparency in the sector, allowing small and medium sized businesses to make an informed choice when choosing their employee’s pension scheme.
According to the Office of Fair Trading (OFT) there are currently 186,000 pension schemes within the UK being charged 1% or more for management fees, with government calculations suggesting that somebody in one of these schemes who puts away £100 a month over their career would be almost £35,000 better off if these fees were reduced to the proposed 0.75% cap.
Delay Welcomed by Pensions Industry
News of the cap’s delay has been widely welcomed by those within the pensions industry, with John Lawson, head of policy at Aviva, underlying the government’s need to get the rules right before entering them into legislation:
“If that means government and the industry need to take more time to consider the best solutions, then we should take it. The consequences of getting this wrong are serious. Employers are under pressure with the rollout of automatic enrolment – giving them some certainty that any charge caps will apply from 2015 gives them time to prepare.”
Yvonne Braun, head of savings, retirement, and social care at the Association of British Insurers’ (ABI) shared Mr Lawson’s views, stating that the delay represented a sensible decision by the government. With up to 95% of contribution pension providers being members of the ABI, Ms Braun stated that immediate (April 2014) introduction of a cap on pensions fees would:
“…cause disruption at an operationally sensitive time with thousands of new employers setting up schemes and provider capacity already strained.”
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