Pension Charge Cap Deferred

The annual cost of running your workplace pension was due to be capped in April this year, but the DWP has this morning confirmed it is now delayed until 2015

Emma Wall 23 January, 2014 | 10:53AM
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Pension savers will have to shell out hundreds of pounds in unnecessary fees for another year as charges will not be capped until April 2015, pensions minister Steve Webb confirmed this morning. 

Making a success of auto-enrolment is the Government’s top priority

The pension's minister has been accused of kicking the cap on workplace pensions "into the long grass" as 

Auto-enrolment workplace pension schemes were to be capped at 0.75% a year from April 2014 after the Office of Fair Trading investigation into workplace pensions concluded in September that defined contribution (DC) schemes were over-complicated and difficult to understand. 

Morten Nilsson, CEO of NOW: Pensions said to build confidence in pension saving and safeguard the long term success of auto enrolment, high charging schemes need to be stamped out.

"While today’s announcement means a temporary stay of execution for the worst offenders, it’s bad news for savers. High charges, or even moderately high charges, have a very large impact on final fund values," he said.

"Delaying this decision creates uncertainty for the industry and for the tens of thousands of employers who are selecting a workplace pension for auto enrolment this year."

But Aegon’s  Managing Director of Workplace Solutions Angela Seymour Jackson said that the delay was necessary in order to allow employers and providers to get on with enrolling many thousands of employees into workplace schemes, often for the first time. 

"Making a success of auto-enrolment is the Government’s top priority. The decision to defer introducing any price restrictions until April 2015 supports this," she said. 

"Rushing new scheme conditions through at this critical stage would have disrupted many employers’ plans to use good existing schemes. The Pensions Minister’s decision will avoid employees losing out on valuable contributions while employers made alternative arrangements."

Laith Khalaf of Hargreaves Lansdown speculated that pushing a cap through for this April could well have derailed the auto-enrolment programme.

Not everyone is in favour of the pension charge cap however. Some believe that by restricting the charge it will restrict the number of range of asset which can be held in a workplace scheme. 

Tim Banks, Managing Director, Pensions Strategies Group at Alliance Bernstein said as a generalisation, more expensive investment strategies will incorporate more investment sophistication and result in the investor getting better risk/return trade off. 

“In our view, pro-active management of the asset allocation - strategic and tactical - is where the greatest value is created,” he said.

The announcement that charge cap will be delayed by at least 12 months comes just one day after a damning report from think tank Policy Exchange called for compulsory pension saving in order to plug the gaping chasm between current retirement savings and what workers need to put away provide a sufficient retirement income.


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Emma Wall  is former Senior International Editor for Morningstar