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ABI unleashed: Trade body slams lower pensions charge cap as L&G exits

The Association of British Insurers has lashed out at the prospect of reducing the 0.75 per cent pensions charge cap on auto-enrolment schemes as the chief advocate of a lower cap, Legal & General, leaves the trade body.

In its written evidence to the Work and Pensions select committee, published this week, the ABI says the 0.75 per cent charge cap on auto-enrolment schemes must not go lower or will risk damaging competition in the sector.

The 0.75 per cent applies from April but is subject to a review in 2017, when it could be lowered and extended to include transaction costs.

It is a significant shift in tone for the trade body as L&G, which has strongly campaigned for a 0.5 per cent charge cap, leaves the organisation at the end of the year.

ABI members were at war over how the trade body should lobby over the cap, resulting in the organisation missing the deadline to submit its views to the DWP charge cap consultation.

The ABI also hit out at the “very late” DWP decisions after auto-enrolment was introduced, given the Office of Fair Trading report in 2013, around the establishment of independent governance committees and the charge cap.

In its written evidence to the select committee, the National Association of Pension Funds questioned the “tight timeframe” for introducing the charge cap and the risk of “unintended consequences” for savers.

Royal London said the charge cap has created a “significant distraction” when introducing auto-enrolment and uncertainty over further cuts remain.

But Which? and the Trades Union Congress called on DWP to lower the charge cap to 0.5 per cent.

The ABI submission states: “The private sector cannot deliver a vibrant, competitive workplace pension market if the charge cap is reduced further.

“Management charges have been falling in recent years and the cap to qualifying schemes under auto-enrolment is unlikely to result in a reduction of costs to scheme members, making a formal charge cap unnecessary.

“Consumers are best served by a competitive market with a number of providers competing for business and there is a risk that this could be lost if the charge cap was reduced further from 75 basis points.

“This is because pension administration for smaller employers is generally much more resource-intensive as there is less HR and pension expertise at the employer. Providers therefore need certainty that there will be no further changes to the charge cap in the medium term.”

It states: “Together with the Budget changes, the combined weight of these legislative and regulatory interventions in the pension space has created significant delivery risk, as the industry is simultaneously implementing all these changes, as well as auto-enrolling thousands of employees.” 

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. All I have to say on this is TESCO and ASDA. Enter a price war at your own risk.

  2. The definition of a business is ” the purchase or sale of goods in an attempt to make a profit ”

    Why should anyone get involved in loss making activities, particularly if there are external shareholders?

    Do I detect an ulterior motive to leave NEST as the only provider standing, and prove how successful it was?

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