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To cap or not to cap?

Standard Life is concerned the Government may look to impose some from of charge cap on group personal pensions in parallel with the launch of personal accounts.

Which? has been lobbying the Department for Work & Pensions in a bid to make sure employers who choose to provide qualifying GPP schemes, rather than personal accounts, will offer similarly low charges.

Principal policy adviser Dominic Lindley says: “We have said to the DWP that it has to make sure these qualifying schemes are of significant quality, which includes low charges.

“From the consumer’s point of view, I do not see anything wrong with providers having to reduce prices but we are not arguing for a specific charge cap.”

Standard Life head of pensions policy John Lawson says the insurer has had calls from consultancy firms asking in-depth questions about its GPP operating costs.

The Personal Accounts Delivery Authority is aiming to deliver personal accounts at a charge to members of 0.5 per cent. Chief executive Tim Jones has said in the past that if the scheme cannot be delivered for this it is not worth doing.

But Lawson estimates that charges for existing schemes average between 0.6 per cent and 0.8 per cent but some GPPs costs members over 1 per cent.

He says margins for group pension business are already thin and adds that providers would end up making a loss if charges are brought into line with personal accounts because they would not be able to “cut their cloth any finer”.

He says: “The Government is allowed to pass whatever regulations they see fit regarding the quality of schemes used to auto-enrol employees. So it could decide that charges are a quality issue and put a charge cap in place.

“The DWP seems to be wanting to set our profit margin for us rather than leaving it to competition. A charge cap of 0.5 per cent would see most if not all the schemes above that transfer to personal accounts.”

Lawson also questions whether it would be fair to force providers to compete when the personal accounts scheme already receives taxpayer handouts.

What is your view? Should the Government force providers’ charges down? Would it see GPPs dwindle and quality schemes transfer to personal accounts? Are provider charges justified?

To comment, click on the link below.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. You must be joking 3rd September 2009 at 5:27 pm

    Here we go again…
    This is just another bit of government thinking it knows best.

    Before long we’ll have a cap on income, a cap on savings, restrictions on where people can invest, and a cap on benefits…

    I assume, of course, that PADA will be exempt from any come back when personal accounts don’t meet people’s expectations… oh to be a government body!!!

  2. Steve Herbert, Head of Benefits Strategy, Origen 4th September 2009 at 6:20 am

    To cap or not to cap?
    A cap on scheme charges has never actually been on the table to date, and I really don’t think that this makes sense to introduce this at this stage.
    Either way, by mere existence, Personal Accounts are likely to force chages lower across the board. The key to success in reducing the savings gap (which is what Personal Accounts are meant to be about) lies in innovation and promotion. If we resttrict product charges then such skills will be reduced or removed, and the savings gap may get worse as a result. I hope calls to introduce this extra hurdle are resisted.

  3. To cap or not to cap?
    Why just cap GPPs, what about all those lovely (highly charged) CIMPs employers have? Have they forgotten about Stakeholder pensions?, which afterall are just personal pensions with a cap & most of the providers will not see a profit for at least 12 years+. Do they not understand economies of scale, & that if you want more investment choice & services then it comes at a price?

  4. Brian Butcher Ideal Financial Management Ltd 4th September 2009 at 10:57 pm

    to cap or not to cap ?
    As an adviser that’s been in this business for 20 years I have NEVER had a client decide to start retirement planning based on pension charging structures becoming cheaper. They start pension planning because I explain to them the need for it. Whilst I appreciate that charges are an issue the govt. needs to realise that companies and advisers will do the job of promoting these IF THEY ARE REWARDED. To focus primarily on charges is like a car manufacturer trying to make a car cheaper – by leaving out the engine !!! Advisers and companies are the engine for getting pensions established and if the govt. dont factor in the costs of this then personal accounts could become another disaster in the same way that stakeholder pensions were. When will they ever learn that advice is just as important than charges and this cost needs to be factored in to the price ?

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