(Parliamentary Under Secretary
of State for Pensions & Financial
Inclusion): The Government has now completed the
examination of the cap that applies to member-borne charges in
default investment funds within defined contribution (DC) pension
schemes used for automatic enrolment (AE).
After seeking a range of industry and consumer views and
considering the findings of the recent Pension Charges Survey,
which captures data from providers covering 14.4 million scheme
members, we do not feel that now is the right time to change the
level or scope of the cap.
The cap is working broadly as intended, helping to drive down
member-borne costs, whilst allowing flexibility to allow asset
diversity or tailored services for members and employers. It
appears some small schemes are less able to take advantage of the
most competitive market rates, and we have launched proposals to
simplify the scheme consolidation process. This will allow
smaller schemes who cannot secure value for money in the long
term to exit the market and secure a better deal for their
members elsewhere.
There continues to be a lack of transparency on transaction
costs, which is hindering trustees and Independent Governance
Committees’ (IGC) attempts to monitor and evaluate whether these
represent value. We believe that it is vital to get disclosure
right before deciding on whether a cap on transaction costs is
appropriate. Recently announced DWP legislative proposals will
ensure trustees have sight of these costs and can give that
information to members. The FCA is developing similar rules for
providers.
The Government remains committed to ensuring AE members are
protected from unreasonable and unfair charges, and recognises
that there is on-going concern amongst consumers.
We will actively monitor the situation, by reviewing the
information which trustees of DC schemes will be required to
publish from April 2018, and which providers will publish in due
course, to monitor whether the downward trend in charges is
continuing.
That will also inform our next review. In 2020 we intend to
examine the level and scope of the charge cap, as well as
permitted charging structures, to see whether a change is needed
to protect members. This will also allow us to evaluate the
effects of the next stage of AE and the new master trust and
transaction costs regimes.
Whilst we are not pre-judging the decision, we expect there to be
a much clearer case for change in 2020.
