The Pensions Regulator has warned against a cap on pension charges, saying it would limit new entrants into the market.
The Government has said it is willing to look at capping pension charges if the industry cannot come up with a plan to drive down costs. But at a work and pensions select committee hearing last week, TPR chief executive Bill Galvin warned against the move, calling it “a blunt tool” which would could reduce choice at the top end of the market.
He said: “A world with very strict regulation confining charging structures might limit opportunities for people to bring propositions to market to suit a variety of customers. With auto-enrolment, we need to make sure we accommodate propositions that appeal to well paid and well informed workforces as well as the median employee.”
The National Association of Pension Funds is working on a code of practice on charging structures. Galvin suggested having a framework with more common charges set out in a standard way with any additional charges listed separately. “That would be a big step forward,” he said.
Asked by committee member and Conservative MP Oliver Heald, whether it was possible to arrive at “a transparent and comparable” charging structure, Galvin said the variety of pension schemes meant that was a challenge. He added: “I believe it is possible to get to a better place than we are now, where people can make decisions better.” The committee is running an inquiry into auto-enrolment, which begins for larger firms in October. Last December, committee member and Conservative MP Brandon Lewis, who also warns against a cap, called for the charges to be set out in cash terms, one of the options being considered by the NAPF for its code of practice.
The Government can cap pension charges under a power in the 2008 Pensions Act.