Government confirms no change to the charge cap

The Government has confirmed that there will be no immediate change to the charge cap following completion of the review of the cap that applies to member-borne charges in default investment funds within defined contribution (DC) pension schemes used for automatic enrolment (AE). The Government has said that it does not feel that now is the right time to change the level or scope of the cap.

The Government sought a range of industry and consumer views and considered the findings of the recent Pension Charges Survey, which captures data from providers covering 14.4 million scheme members.

The outcome of the examination is that the cap is working broadly as intended, helping to drive down member-borne costs, whilst allowing flexibility to allow asset diversity or tailored services for members and employers. Nevertheless, some smaller schemes appeared to be less able to take advantage of the most competitive market rates.

The Government is working on bulk transfer changes which it believes will simplify the scheme consolidation process and allow smaller schemes, who cannot secure good value for money, to transfer elsewhere to obtain this. There are also efforts underway to address the lack of transparency on transaction costs, which is hindering trustees and Independent Governance Committees’ (IGC) attempts to monitor and evaluate whether these represent good value. Recently announced proposals will ensure trustees have sight of these costs and can give that information to members and the FCA is developing similar rules for providers. This information will help the Government to assess whether the downward trend in charges is continuing.

The Government has confirmed that the next review will take place in 2020 and it will include the level and scope of the charge cap, as well as permitted charging structures, to see whether a change is needed to protect members. The timing of the next review will allow the Government to assess the effects of the next stage of AE and the new master trust and transaction costs regimes.

Whilst we are not pre-judging the decision, we expect there to be a much clearer case for change in 2020.