By Phill Robinson, chief executive of IRIS
Last month UK pensions minister Steve Webb proposed three options related to capping charges on auto enrolment pension schemes, in an effort to protect savers from increasing charges.
The three options outlined included a charge cap of 1%, 0.75% and a two tier "comply or explain" cap. Under the "comply or explain" cap, employers would have access to a 1% charge cap but would need to justify why the scheme charged over 0.75% to The Pensions Regulator.
The cap would encompass all relevant charges including administration and contribution fees. Another consideration being made is whether to include transaction costs within the cap, as well as potentially banning commission charges on auto enrolment schemes.
It seems however, that some people feel that this proposed charge cap does not go far enough to help employees. Legal & General have this week called on the government to reduce their proposed charge cap further still to 0.5%, as the insurer announced plans to introduce a standard 0.5% charge cap on all of its default funds for auto enrolment.
We welcome the proposed charge cap to auto enrolment pension schemes. After all, until now businesses have had to bear the expense of meeting The Pensions Regulator (TPR) regulations by implementing auto enrolment. For many, this has taken months of planning, investment in new systems and the development of new processes, so it doesn’t seem right or fair that pension providers should make excessive profits on the back of this.
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By GlobalDataIn the long run it will be better for everyone involved if employees’ and employers’ contributions can work harder for the employee in retirement. The more benefit an individual can see in their pension scheme, the more likely they are to remain enrolled and not opt-out, therefore helping to ensure the ultimate success of auto enrolment.
For auto enrolment to meet its original goal of allowing and encouraging workers to save for their retirement, those being targeted need to see clear benefits of remaining in their workplace pension scheme.
It is vital for the government to assess the long term effects of introducing a charge cap so that it can be ensured that savers are going to be offered a solution that will provide them with value for money.
