The pensions minister proposes today a 0.75 per cent cap on auto-enrolment pension scheme charges. Steve Webb is an academic who has never worked in business nor created a job, yet he appears to be unchallenged in Parliament and the media about the effect of all his late changes. To summarise:
- Auto-enrolment proposals are some years old, and implementation started in October 2012.
- Commission was allowed to remain on existing group pensions, consultancy charging was allowed on new ones and there were no proposals for charge capping.
- Webb banned consultancy charging earlier this year, and now, more than a year into auto-enrolment rules, proposes restricting charges (hence banning thousands of existing pension schemes).
Imagine a company that has a perfectly good pension scheme with say a 0.9 per cent charge, all ready for its imminent staging date, perhaps paying 5 per cent employer contribution (there are thousands of schemes like this), yet Webb comes along and plucks 0.75 per cent out of the air, with no idea of the consequences.
Said company then has to implement a new pension scheme and bear all the set-up costs (possibly now to include paying thousands for software that would have been provided by the insurer), perhaps right on or even past the staging date.
Such companies are also highly likely to try to recoup some of this extra cost by reducing employer contribution, possibly to the minimum 1 per cent. But, hey, the member will be better off because the charge is lower – right on.
Auto-enrolment, when it hits small companies, will attract much less positive headlines than now. Smaller companies are only just waking up to how much these rules will cost to implement; many will close as they will not be able to afford the compliance costs. Yet no one in government has the foresight to see the additional damage Webb is causing with retrospective changes.
Let’s not forget that employers already have the right to replace pension schemes with “cheaper” ones if they wish. By all means put a charge cap on new schemes (with plenty of notice) but do not put one on existing schemes.