“Government nobbled by the usual pension suspects,” was the cry from some quarters following this morning’s FT revelation that the proposed auto enrolment cap was to be delayed by at least a year.
They are right to be on guard. A huge amount of money is spent by financial services companies looking to influence the political agenda. Sometimes it is aligned with the interests of the consumer but inevitably there are times when this is not the case.
However, the rush to introduce half-baked reforms just to meet this April’s staging dates didn’t look to be in the interests of anyone. These are seismic changes that need to be properly consulted on and thought through.
The Department for Work and Pensions published its first proposals to cap charges for auto-enrolment schemes in October, with the over-ambitious goal of introducing the changes this April.
The rationale for this super-quick turnaround was that the Government wanted to make sure the cap was in place for the large number of companies that begin auto-enrolment staging this spring.
But taking a step back it is hard to see a huge benefit to pension savers in rushing these changes through by April. Meanwhile there are big concerns about botching such an important reform through sticking to an arbitrary deadline.
Research quoted in the Government consultation suggests average pre-RDR GPP charges are 0.77 per cent and many are much lower than this.
The direction of travel from the Government on charges is pretty clear and I’d be surprised to see many employers staging in the spring with charges much above the figures set out in the DWP consultation.
Delaying the reforms by a year or so is hardly likely to significantly eat into the pots of savers starting out in schemes which then have to shave charges.
Valid concerns over the high charges and exit penalties levied on legacy schemes are already being addressed by the OFT-demanded past business review, which is due to finish by the end of the year.
Labour supported a pragmatic delay to the introduction of charge cap rules to take account of this review when the Government’s proposals were launched in the autumn. However it now seems to be indulging in a bit of political opportunism in attacking the delay and accusing the Government of kicking the reforms into the long grass.
“Have ministers caved into the vested interests of the fund managers and pension giants who are accused of slicing and dicing the savings of hard-pressed British savers?”, bellows the Labour press release.
Perhaps the biggest vested interest at play is that of the Conservative-dominated Treasury which is understood to have big concerns about an interventionist charge cap.
There are other things to consider.
The OFT’s report into the pensions market, published a few week’s before the Government’s consultation, raised significant concerns about a charge cap.
It said: “Charge caps can create a risk of unintended consequences. Set too high, a cap can become a target for providers. Set too low, a cap can create incentives for providers to lower quality and/or impose less visible charges elsewhere.
“While we would not rule out a charge cap, it should be considered in full knowledge of the different charges and benefits that apply in the market and of the risks that a cap might entail.”
Before Christmas the independent Regulatory Policy Committee savaged the DWP’s charge cap assessment, branding it “not fit for purpose”.
With all this in mind the delay does not appear to me to signal a Government buckling under powerful vested commercial interests.
Rather it is hopefully a sign of ministers taking their time to make sure they are getting these important reforms right. Let’s hope they succeed.
Paul McMillan is group editor at Money Marketing- follow him on twitter here