Workplace pensions review could result in lower fees for savers

A government review of workplace pension charges could result in changes to the 0.75% charge cap for default funds of defined contribution schemes.

Pension savers could be in line for a fairer deal after the Department of Work and Pensions (DWP) launched a review into workplace pension charges.

The DWP wants to find out if the current maximum annual charge of 0.75% on defined contribution default funds used for auto-enrolment schemes should be lowered, and if other fees should be included.

It is also looking at whether transaction costs, and other costs associated with life assurance products, should be included in the cap.

The DWP will also be checking the impact of flat fees on pension scheme members. A flat fee can result in higher charges than under a single charge structure. This is because a flat fee is levied on the pot each month irrespective of how much is paid into the pot.

Kay Ingram, director of public policy at financial planners LEBC, says: “In practice, the majority of schemes which we help employers to install offer charges considerably below the 0.75% cap on a wide range of investment choices.”

FCA announces value for money consultation

Separately, the Financial Conduct Authority (FCA) is fast-tracking plans to check if members of workplace personal pension schemes are getting value for money.

The FCA proposals aim to make it easier for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare the value for money of pension products and services.

The aim is to make them better able to judge if pension customers are getting a good deal.

ICGs were introduced in 2015 to scrutinise the value for money of the provider's workplace pension.

The review found that some IGCs did not challenge firms on whether they gave a good deal to workplace pension scheme members.

The FCA also discovered GAAs operated by third-party firms on behalf of pension providers did not always deliver value for money.

The financial watchdog previously found that some IGCs lack the necessary independence and were ineffective at challenging firms to ensure value for money for workplace pension scheme members.

GAAs operated by third-party firms on behalf of pension providers were also found to be less effective at delivering meaningful improvements in value for money.

Megan Butler, executive director of supervision at the FCA, says: “Our separate review into IGCs and GAAs lays out the key lessons that need to be learned to ensure that workplace pension holders get a fair deal.

“The FCA has carefully considered these findings and is asking firms that do not meet our requirements to make improvements.”

This article was originally written by our sister website Moneywise. 

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