The Government is considering changes to pension legislation to make it easier for employers with contract-based pension schemes to move members from old high charging schemes to low charging schemes.
The Financial Times today reported that implementation of a charge cap for automatic enrolment default funds has been delayed until 2015.
This came after Money Marketing revealed tensions between the DWP and the Treasury over the level of the cap, with Treasury officials pushing for a 1 per cent cap and pensions minister Steve Webb lobbying for a lower figure of at least 0.75 per cent.
Senior industry sources say the lack of agreement between the two Government departments meant the proposed April 2014 implementation date had become unworkable.
As a result, the DWP is now looking to introduce a charge cap in April 2015 at the earliest. This will afford the pensions industry time to complete a planned audit of legacy scheme charges.
It remains unclear what transition measures will be put in place for the industry, although the Association of British Insurers is pushing for a three-year transition period for employers who have already reached their auto-enrolment staging date when the cap is introduced.
“The Government simply ran out of road on the charge cap”, one source says. “Firms are staging on 1 April and they have already done deals with providers.
“We will get a much broader paper later this month that looks at both charges and governance and what makes a quality pension scheme.”
Legal & General pensions strategy director Adrian Boulding says making it easier for employers to move contract-based scheme members from old to new schemes will be a key focus for the DWP.
He says: “Today it is very difficult to get a contract-based scheme moved across to a new lower charge scheme because you need individual member signatures on each transfer. We will see some push on that and the Government may even look to rewrite the legislation to make that process easier.
“We need the ability for somebody in a collective fiduciary situation to move people from one contract-based scheme to another. At the moment the employer does not have the power to move existing employees to a new scheme, so that would require a new piece of legislation.”
Speaking during a debate at the National Association of Pension Funds annual conference last year, Standard Life head of workplace Barry O’Dwyer said contract law acted as a barrier to moving people from poor quality schemes to good quality schemes.
He said: “We need to learn the stuff that works in the trust-based world and look at whether we can influence the Government to allow us to do something similar on the contract-based side, because the Government can change the law.
“It may well be that we can introduce some sensible laws and regulation that allow us to move people from old, non-performing schemes into more modern schemes without all the paperwork.”