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Govt excludes ‘defined ambition’ schemes from 0.75% pensions charge cap

The Government plans to exclude schemes new “defined ambition” pension arrangements from its 0.75 per cent auto-enrolment charge cap.

The Department for Work and Pensions has today confirmed it plans to press ahead with proposals to set a price ceiling for workplace schemes in April 2015. The cap will be reviewed in 2017 to see whether it should be lowered and broadened to include transaction costs.

The cap is designed to protect members from “rip-off charges” and will be accompanied by new, stricter governance requirements for occupational pensions.

However, the DWP has created a carve-out for DC arrangements with “third party promises”. This means schemes which promise to protect the value of members’ pots as they approach retirement will be exempt from the cap.

Executive pension schemes and Small Self Administered Schemes with fewer than 12 members will also be excluded.

The DWP says: “The default fund charge cap will not apply to money purchase schemes that contain third party promises (defined in the Pension Schemes Bill 2014).

“This is because, as the Government recognised in its June 2014 publication ‘Reshaping Workplace Pensions for Future Generations’, schemes providing promises or guarantees that benefit members may be more complex and involve higher costs than arrangements without any such guarantee or promise.

“Although the term ‘money purchase’ is commonly understood to refer to schemes which offer 
no promise or guarantee to the member, schemes where the promise or guarantee is provided 
by a third party are money purchase, because the funding liability falls on the third party not the scheme.

“As we do not wish to apply the charge cap where there is a promise, we therefore do not propose to apply the charge cap to money purchase benefits where there is a third party promise.”

A DWP spokesman says: “Such a scheme might be one where the main provider has an arrangement with another organisation to offer a guaranteed investment return. The DWP is consulting on these draft regulations and we would welcome views on this and other proposals by 14 November.”

The DWP has also confirmed consultancy charges will be banned from April next year, while active member discounts and member-borne adviser commission will be outlawed for auto-enrolment from April 2016.

Under new governance requirements, trustees will be required to design default arrangements “in members’ interests” and keep them under “regular review”.

They will also need to assess the costs and charges borne by scheme members and have a chair of trustees responsible for signing off an annual statement on how the governance requirements were met.

In addition, all pension master trusts will be required to have a minimum of three trustees, the majority of whom must be independent.

Pensions minister Steve Webb says: “Consumers have had a raw deal from the market for too long. A pension is one of the biggest investments you can make in your lifetime, yet many people have seen the savings they have put by all their working life whittled away by high or needless charges they may not even be aware of.

“We are taking strong action to restore confidence in pensions by capping charges, banning hidden costs and putting new standards in place to ensure everyone saving in workplace pensions gets the best possible value for money.

“With millions of people now saving through automatic enrolment, we want to give them confidence that their hard-earned money is working for them and not disappearing in opaque charging structures and ending up lining the pockets of the pensions industry.”


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