Charges: response to consultation
Background
The DWP’s consultation paper, Better workplace pensions: a consultation on charging asks for views on whether a cap on charges in default funds should be introduced. The consultation sets out three options for a cap.
- Option 1 – a charge cap of 1% of funds under management
- Option 2 – a lower charge cap of 0.75%
- Option 3 – a two-tier “comply or explain cap”, which would comprise a standard cap of 0.75% which could be increased to 1% for all employers who are able to explain to TPR the reason for the charges in excess of 0.75%.
In this response:
Capping charges
We do not consider it appropriate for us to comment on either:
- the three options for capping charges on default funds in schemes used for automatic enrolment; or
- the abolition of active member discounts or consultancy charging in legacy schemes.
Implementation of the cap
We are concerned that the consultation proposes that the charge cap will be introduced for new arrangements from April 2014. Our experience is that employers are planning for automatic enrolment with 6-12 months’ lead time and the proposed implementation date will not give pension scheme providers and companies sufficient time to plan for this change.
If a cap is to be introduced, an alternative would be to introduce it for all schemes from April 2015, as is currently the plan for legacy schemes.