Government confirms ‘level and scope’ of 0.75% automatic enrolment charge cap will remain unchanged
Statement hints at possible change to charge cap in 2020 as policymakers focus on ensuring value for money for savers
Further work on transparency to shine a light on transaction costs
Tom Selby, senior analyst at AJ Bell, comments:
“The case for introducing a charge cap to protect workplace pension savers was clear given that Government reforms are nudging people into these schemes. Even small differences in the costs members pay can have a colossal impact on the final size of the pension they receive, so anything that protects members from unfair high charges has to be a good thing.
“While policymakers have decided the 0.75% price ceiling established in 2015 remains appropriate for now, this may just be a stay of execution and the Government believes there will be a ‘much clearer case for change’ in 2020.
“What this change will look like remains to be seen. If the Government decides to lower the cap it will presumably do so in a way that ensures NEST, the scheme established by the state to support auto-enrolment, isn’t caught out. It would certainly be no surprise to see the Government push for a 0.5% charge cap ahead of the scheduled 2022 general election to show that it remains on the side of hard-working savers.
“Policymakers may also want to expand the scope of the cap by including transaction costs. At the time of the original charge cap consultation the industry successfully lobbied against the incorporation of transaction costs, with industry figures arguing they are unavoidable.
“It also remains unclear how transaction costs, which are inherently unknown, would be quantified for the purposes of a cap, and the Government would have to be careful not to dissuade fund managers from making trades in members’ interests for fear of breaching the cap. However, work is ongoing to improve disclosure of transaction costs and this will inevitable hold huge sway in informing any decision in relation to the cap.”