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Govt could scrap ‘complex’ pension charge cap plans

The Government is considering abandoning plans to cap pension charges until after the May 2015 general election because the reform is “too complicated”, Money Marketing understands.

Pensions minister Steve Webb first revealed proposals to cap the annual management charge for automatic enrolment default funds at between 0.75 per cent and 1 per cent in October.

The cap was due to be implemented in April but was subsequently delayed until April 2015 “at the earliest”.

Money Marketing understands Government officials briefed the industry last week – before Labour announced its own plans to set a 0.75 per cent charge cap – saying the reform would be “quietly dropped”.

One source says: “The Government has kicked the charge cap into the long grass until 2015 but the reality is it is not just too complicated to do now, it is too complicated full stop.

“Once the Government lifted the lid and tried to work out what was what, they came to the conclusion it was not possible.

“So when they say they are going to revisit it in Spring 2015, what they actually mean is they are going to run hell for leather to the next election and it is going to get quietly dropped.”

Another source says: “The Treasury will continue to resist the charge cap and the policy will probably be taken up by Steve Webb in the LibDem manifesto. We are likely to hear more noise on this in the Budget.”

A third source says the Treasury and DWP remain in conflict over the plans. The Treasury is said to be concerned about the disruption a 0.75 per cent charge cap would cause to auto-enrolment, while there remains disagreement about whether transaction costs should be included in the cap.

Labour shadow pensions minister Gregg McClymont told Money Marketing this week that, if elected, Labour would exclude transaction costs from a 0.75 per cent charge cap. A 0.5 per charge cap would also be put in place as part of plans for schemes wanting to accept “stranded” pot transfers.

Treasury select committee member and Conservative MP Mark Garnier says he is “instinctively against” price capping in any market. He adds: “Providers should be able to charge whatever they like as long as they are absolutely clear and transparent about what they are charging.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “The reality is most people are getting a good deal on their pension but they need to be able to see that. It has proven harder for the DWP to deliver that through a charge cap than they originally anticipated.”

A DWP spokesman says: “We will publish our response to the consultation in due course.

“This is about more than just a cap – we will be responding on a wide range of issues, including governance, scheme quality and transparency.”

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Comments

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  1. goodness gracious 13th February 2014 at 12:34 pm

    It seems to be good politically to propose a maximum charge to those who have been auto enroled but have little interest in where their money is invested, particularly when these pensions probably will become compulsary around about 2020 as too many will stop paying employee contributions once the personal contributions rack up.
    However it is a nonsense not to include all charges, including transaction charges, audit fees and all moneys taken from the fund. all funds should be forced to publish a 1st Jan-31st Dec account of all charges deducted from a fund If multi managed, this must include all from sub funds as well. Then express this sum as a percentage of the average fund value over the year.
    I suspect very few default funds will be below 1% on this basis.

  2. One source says: “The Government has kicked the charge cap into the long grass until 2015 but the reality is it is not just too complicated to do now, it is too complicated full stop.
    They said the same about the state pension being too complicated and have produced the new Pension Bill. One of the problems with the current pension scheme is the denial of indexing to just 4% of all pensioners worldwide. So what do they do when writing up the new one but include the discriminative policy by including clause 20 which copies the existing problem. Not only upholding but condoning discrimination for tomorrows pensioners who retire to one country but not another. Who could devise a pension scheme that would deny every 25th person their indexing but a politician ?
    Disgraceful and shameful treatment by those whose mandate is to look after their citizens best interests.

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