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ABI: Charge cap puts success of auto-enrolment at ‘severe risk’

The Association of British Insurers has warned Government proposals to cap pension charges in April will put the success of automatic enrolment at “very severe risk”.

In October, the Department for Work and Pensions  revealed it was considering three options three options for capping charges on auto-enrolment default funds.

The consultation, which closed last month, sets out possible charge caps of 1 per cent, 0.75 per cent or a two-tier “comply or explain” cap.

Policymakers have proposed introducing the cap in April for all employers staging from April 2014 onwards before extending it to employers who staged between October 2012 and March 2014 by April 2015.

In its response, the ABI says introducing an auto-enrolment charge cap next year, alongside a possible ban on active member discounts and in-built adviser commission, will create “further burden and confusion” for employers and place a “very severe risk” on the delivery of auto-enrolment.

The trade body also accuses the Government of “moving the goal posts” months before the staging dates of tens of thousands of employers and warns, if set too low, a charge cap will lead to less competition.

The ABI says if a charge cap is introduced, providers should be given a three-year transition period for employers who have already reached their auto-enrolment staging date.

Finally, the ABI says the Government should not cap charges on legacy schemes and instead allow an audit, recommended by the Office of Fair Trading, to be completed by April 2015.

Chase de Vere head of communications Patrick Connolly says: “We have concerns about the consequences of a charge cap. It is incredibly unlikely a retrospective charge cap will be introduced with immediate effect but a three-year transition sounds like a long time.”


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