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DWP charge cap figures akin to ‘Iraq war dossier’

Hargreaves Lansdown head of pensions says political point scoring is behind DWP figures on charges.

The Government has been accused of deliberately misrepresenting statistics on the impact of its proposed charge cap, with its rationale for introducing the cap likened to the “Iraq war dossier”.

The Government is consulting on a charge cap of 1 per cent, 0.75 per cent 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.

Speaking at the Tisa annual conference in London last week, Hargreaves Lansdown head of pensions research Tom McPhail highlighted the calculations cited by the Department for Work and Pensions last month as part of its charge cap consultation.

McPhail says: “It was reminicent of the Iraq dossier because it felt like the DWP presented figures in a questionable way. The Government reached a conclusion on what it wanted to achieve and seems to have organised the figures to show what it wanted.

”It was quite shocking to see such naked political purpose to this. I am not saying that charges are not important but there is a political agenda to talk up charges right now.”

The DWP paper gives the example of one saver with a pension pot of £701,800 before charges, based on lifetime savings made over 46 years and a 7 per cent annual return.

It states there would be a saving of £37,400 if charges were set at 0.75 percent rather than 1 per cent. But McPhail calculates that allowing for a 2.5 per cent rate of inflation, the savings would be less than half that level at £12,000.

Concept Financial Planning managing director Paul Richardson says: “Numbers can be manipulated to look however you want them to look. Why is the Government so fixated on charges when ultimately we are trying to get people to save?”

A DWP spokesman says: “The assumptions used in our consultation are open and transparent. Our illustrations show how even small differences in the level of scheme charges can make a significant difference to someone’s pension pot. We encourage people to respond to our consultation by 28 November.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I’m sure I’ll sound pessimistic but, you could make pensions charge free and people won’t save any more. The constant tinkering and maligning of pensions by politicians has pretty much guaranteed that the public is distrustful. For years Governments of all colours have treated pension funds as if they were a Government asset to be used and abused. Charges are a red herring, stop meddling, and send out a positive message that pensions won’t be messed with.

  2. They tried to make RDR research suit their requirements then ignored it when it showed no evidence of commission bias.

  3. This “The DWP gives the example of one saver with a pension pot of £701,800 before charges” however, most workplace pension scheme members will not accumulate a pension pot in excess of the new triviality limit and a saving of 0.25% on £30,000 is only £75 a year. Furthermore anyone with a pension pot of £701,800 is unlikely to be exclusivley invested in the default fund! Is it any wonder the DWP were ignored?

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