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Kim North: Hard auto-enrol choices that need advice


The majority of my previous week was spent dealing with pension matters. Therefore I watched with interest the capping of pension charges debate.

My eyebrows raised when I read Money Marketing’s recent news story’s recent news story about how the Government was considering kicking its charge cap reforms into the long grass as they are too complicated.

It has already delayed the date from April 2014 to at least April 2015. Meanwhile, a group of Labour Lords have tabled an amendment to the Pensions Bill that would force the Government to impose a pension scheme charge cap by 30 April 2015.

I would suggest a further consultation to see if the cap charge should be 1 per cent or 0.75 per cent.

I am forgetting about 0.5 per cent as a charge cap as we have so few serious providers in the auto-enrolment space.   

A DWP research paper reports that the average annual management charge is 0.71 per cent for defined contribution trust-based schemes and 0.84 per cent for contract-based schemes. A charge cap on auto-enrolment schemes makes sense to me as most contract-based schemes – remembering that there are only five major life and pension companies as serious provider contenders in the auto-enrolment space – will treat customers fairly as it will create a level playing field.  

Direct customers and financial advisers need to carefully consider the investment strategy as this decision will be more important over the longer term than the cost of the pension.

Will people aged 25 be better off in a Nest plan with its 1.8 per cent contribution charge and 0.3 per cent ongoing charge investing in the default foundation fund which has less than 35 per cent equity content?

Or would they be better served by a pension charging 1 per cent with a default fund with a higher equity content which performs better? 

I may no longer be 25, but I know where I want my pension to be – in well managed equity funds. After the withdrawal of consultancy charging from group pensions, which resulted in a number of pension schemes being rewritten, I trust the policymakers will be sensible about the withdrawal of commissions from group pension business written pre-RDR.

The pension providers are working to capacity, with some providers’ service standards dropping. 

This is partially to do with the increase in the volume of business, with The Pensions Regulator saying the number of trust-based DC schemes has increased in the past year by 14 per cent.

It is also down to the fact that many providers are dealing directly with the customer. 

A chat between a financial adviser and provider may take 10 minutes. With Aunty Georgina, who has a directly written auto-enrolment plan, the same conversation may take 40 minutes to make her understand the issues of, for example, which default fund she should choose.   

There is so much going on in the pensions world, I do worry consumers that do not have a financial adviser will never understand the issues.

Kim North ( is managing director of Technology and Technical



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