The Confederation of British Industry has warned proposals to cap auto-enrolment charges at 0.75 per cent will force its members to reassess half of their group personal pensions and increase the risk of employers cutting pension contributions.
The Department for Work and Pensions is currently considering three possible charge caps for auto-enrolment default funds – a 0.75 per cent cap, a 1 per cent cap or a two-tier “comply or explain” cap.
Under the “comply or explain” proposal, employers would have access to a 1 per cent charge cap but would have to explain to The Pensions Regulator why the scheme charges over 0.75 per cent.
According to the DWP, around 90,000 employers would be affected if the Government caps charges at 0.75 per cent.
Speaking at a Nest event in London this week, CBI director for employment and skills Neil Carberry said: “One of the great successes of the mere existence of auto-enrolment is that charges have fallen for DC schemes across the board.
“What we don’t need now is anything that cracks open the system. A charge cap of 0.75 per cent would mean half of the GPPs of our membership would need to be redesigned at a cost upwards of £700 to 800 per member. That is just an opportunity to level down.
“The Government should support employers in the delivery of auto-enrolment rather than adding to the burden in the short-term.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “There are some serious issues with legacy schemes which the Government should be looking at.
“An auto-enrolment charge cap of 0.75 per cent will clearly be a big problem for a lot of employers and insurers.”