View more on these topics

Mark Pearson: Capping charges is fraught with difficulty


Along with everyone else advising in the workplace pensions market, we are waiting for the Department for Work and Pensions to publish the detail following the recent consultation on charging.

Although Steve Webb said last week any charge cap will be delayed until April 2015, the Pensions Institute report on the effect of charges within DC schemes, Assessing Value For Money in Defined Contribution Default Funds,  makes interesting reading.

A key finding is that the investment strategy of a default fund is of less importance to member outcomes than charges. It finds no evidence that paying higher charges for a more sophisticated investment strategy will deliver superior performance. 

This leads the report to conclude that a TER in excess of 0.5 per cent may not deliver value for money.

If, as the report suggests, pension charges are the biggest factor affecting the final fund members ultimately receive then capping charges on default funds makes sense.

But capping charges for the new spate of AE schemes being created will only go so far – you need to look at pension funds members have accrued elsewhere. 

We know the industry is currently reviewing all pre-2001 contract-based DC schemes amid the concern over high charges raised by the OFT. The Pensions Institute proposes this audit applies to all schemes written before January 2013 – the entire DC workplace market – and the review is undertaken by the regulator not by provider committee.

This would highlight many schemes where the TER is above the charging range now considered acceptable – but we should recognise that these schemes were created and priced in a very different world.

Also within the Pensions Institute report: legislation should be introduced to allow the mass transfer of contract based scheme members into new arrangements without individual member consent.

If so how will this be used in the workplace pensions marketplace? And who is going to pay for this?

The DWP seems to be set on the path that complying with auto-enrolment regulations is an employer expense. This would, I assume, include any costs incurred by performing a bulk member transfer to a new scheme. The expectation seems to be that more employers will deal directly with a product provider or master trust scheme; would this bulk transfer rule change let the employer agree a process where all legacy assets can be automatically migrated to the new scheme? 

Would this bulk transfer process then need to be replicated in the future every time a cheaper solution becomes available?

Mark Pearson is business development director at Origen Financial Services



Aviva pulls adviser hospitality over inducements concerns

Aviva has pulled its corporate hospitality for advisers in the wake of FCA inducements rules. Last month, the FCA issued final guidance on inducements and conflicts of interest which banned advisers from extravagant hospitality. Aviva’s changes will affect any adviser offering investments, protection or pensions. Advisers and providers have to ensure all hospitality is reasonable, […]


Employers face £60m contracting-out pensions bill

Employers are facing a bill of up to £60m a year after the Government rejected proposals to allow firms to cut the pensions of 60,000 workers with protected rights. The Government’s decision to introduce a flat-rate, single tier state pension worth around £144 a week in April 2016 will see contracting-out scrapped. As a result, […]


Woodford to launch new UK equity income fund

Neil Woodford will launch a new UK equity income fund using a three-week offer period when he begins his new venture at Oakley Capital in May. Money Marketing sister publication Fundweb understands Woodford’s first new fund will launch in the UK Equity Income sector after he makes the move from Invesco Perpetual. Woodford’s new venture will […]


Why the FCA’s annuities review matters

Does the annuity market work for consumers? This is the fundamental question the FCA has been asking during a 12-month thematic review of the market. The answer is no. People are missing out on (at least) hundreds of millions of pounds in retirement income every year. In fact, the latest analysis from MGM Advantage suggests […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm