Government plans to cap auto enrolment pension charges
The government has announced that it intends to enforce a cap on the commissions that auto enrolment pension providers can charge members.
The Treasury is to hold a consultation which will garner opinion on whether it would be most beneficial to either cap the fees at 0.75%, cap them at 1% or introduce a two-tier cap where the base would be 0.75% unless the pension provider could give reasonable justification for charging up to 1%.
Steve Webb, the Pensions Minister, was interviewed on BBC Radio 5 Live Breakfast and, when asked whether the cap could be lower than 0.75% commented that it should not be so low that it discouraged competition between providers. This is an understandable stance on the subject as competition in the market would usually benefit the members of pension schemes, however it is also a concerning possibility that providers who currently charge less than the proposed 0.75% cap (The government sponsored NEST scheme charges 0.5%) would use this to their advantage and increase rates.
Government stats on the cost of charges give a compelling argument for capping - £230,000 over a career lifetime. However, these are based on an employee earning £55,000 per annum; hardly representative of the SME community, or the majority of UK workers. Even so, all employees want to be confident that their contributions are building their pensions, not being lost on charges.
Labour Shadow Minister, Gregg McClymont said "It is clear this government is not ready to take the decisive action needed to stand up for ordinary savers, given that they have just voted against our amendment to the pensions bill that would have made all pension costs and charges transparent."
However, in the Impact Assessment issued by the Department for Work and Pensions, (which can be found here) it is noted that DWP have considered the option to ‘improve disclosure of pension scheme charges’, but concluded that this wouldn’t solve the problem as "many employers – particularly smaller ones – may have trouble using the information, and charges to members may not be their main concern."
Employer involvement and awareness is clearly key to this issue, and when you consider that between 6 and 9 million people are expected to be enrolled in the next five years it is important that even small employers are aware of the effects their choice of provider could have on employees, with a difference of even 0.01% in fees representing a vast sum over the years.
The phased roll-out of the auto enrolment scheme means that many small businesses may not be aware of the date by which they must start auto-enrolling their workforce. For more information on Pension Auto Enrolment, click here.
If you would like guidance on your pension responsibilities or support to set up an appropriate scheme, we can assist you in making this important choice for your business.
If you're thinking of outsourcing your HR why not contact myhrdept.co.uk. With full service Premium Plus packages for medium sized companies typically from only a few hundred per month (and from only £100 per month for smaller companies and start- ups) and fixed price HR support options available for one-off issues, we believe we offer the best combination of quality and price available in the UK. Call us on 01628 820515 (London/South) or 01952 739 590 (Midlands/North) to discuss your requirements or email us here and we’ll call you back.