The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
The Government have now completed the examination of the cap that applies to member-borne charges in default investment funds within defined contribution (DC) pension schemes used for automatic enrolment (AE).w
After seeking a range of industry and consumer views and considering the findings of the recent pension charges survey, which captures data from providers covering 14.4 million scheme members, we do not feel that now is the right time to change the level or scope of the cap.
The cap is working broadly as intended, helping to drive down member-borne costs, while allowing flexibility to allow asset diversity or tailored services for members and employers. It appears some small schemes are less able to take advantage of the most competitive market rates, and we have launched proposals to simplify the scheme consolidation process. This will allow smaller schemes who cannot secure value for money in the long term to exit the market and secure a better deal for their members elsewhere.
There continues to be a lack of transparency on transaction costs, which is hindering trustees and independent governance committees’ (IGC) attempts to monitor and evaluate whether these represent value. We believe that it is vital to get disclosure right before deciding on whether a cap on transaction costs is appropriate. Recently announced DWP legislative proposals will ensure trustees have sight of these costs and can give that information to members. The FCA is developing similar rules for providers.
The Government remain committed to ensuring AE members are protected from unreasonable and unfair charges, and recognise that there is ongoing concern among consumers.
We will actively monitor the situation, by reviewing the information which trustees of DC schemes will be required to publish from April 2018, and which providers will publish in due course, to monitor whether the downward trend in charges is continuing.
That will also inform our next review. In 2020 we intend to examine the level and scope of the charge cap, as well as permitted charging structures, to see whether a change is needed to protect members. This will also allow us to evaluate the effects of the next stage of AE and the new master trust and transaction costs regimes.
While we are not pre-judging the decision, we expect there to be a much clearer case for change in 2020.
[HCWS249]