Royal London chief executive Phil Loney is urging the Government to ditch plans to cap automatic enrolment pension charges in favour of mandatory five-yearly scheme reviews.
Last month, pensions minister Steve Webb set out plans to cap charges on auto-enrolment default funds from April next year. The cap could be set as low as 0.75 per cent.
Writing for Money Marketing online this week, Loney warns introducing a price ceiling in the pensions market will “undermine competition” and could force private sector providers to abandon annual management charge structures in favour of a contribution levy.
He says: “The Government’s thinking on price capping seems confused. In the household energy market, where prices are set to soar, the Government rejects price capping in favour of increasing the levels of competitive rivalry.
“In the workplace pensions market, where charges are set to fall, the DWP proposes introducing price controls that it accepts will undermine the very competition that will ensure charges are driven down.
“If the DWP wishes to maximise the downward pressure on pension charges it should introduce into the Pensions Act a requirement for all employers to review their schemes once every five years and, unless there are good reasons to the contrary, to switch to lower schemes where they find them.”
Loney adds: “The introduction of price capping is likely to drive private sector providers to adopt Nest’s approach of deducting some charges from pension contributions.”
Corporate Benefits Consulting director Allan Maxwell says: “The problem with a price cap is you take the competitive edge away from the market.”
To read Phil Loney’s comment piece in full, go to www.moneymarketing.co.uk.