The charges made on pension schemes provided for employees under the Workplace pension reforms will be subject to a maximum cap of 0.75% under government plans confirmed last week. Pensions minister Steve Webb said the cap for auto-enrolment schemes would be in place by April 2015.
Currently, all pension providers levy a charge on each member’s individual pension pot which is typically a percentage of the fund value. These charges are how the pension providers are paid for the services they provide. A recognised benchmark for pension charges was introduced in 2001 with the Stakeholder Pension charge cap. This was initially a 1.00% charge which was subsequently changed to 1.50% for the first 10 years of the pension plan, reducing to 1% thereafter.
As workplace pension reforms have made it mandatory for eligible jobholders who are not members of their employer’s pension scheme to be automatically enrolled into a scheme provided by their employer, the government decided a lower maximum charge would be more appropriate.
Initially, the maximum charge will only apply to pension funds invested in the scheme’s default investment option and any members who choose to use alternative investment funds may be subject to higher charges.
There are many pension schemes currently being used by employers which have charges above this new charging cap and we are consulting with the pension providers to understand how they will address this announcement on their current schemes. We will of course keep you informed as the position becomes clearer.
The government have also announced that three different categories of pension charge will be banned altogether and once again we will keep you updated as to developments. The three categories are:
• Where explicit payments are made to advisers which are deducted from members’ pensions
• Increases in the charges when a scheme member leaves the company’s employment
• Where charges are deducted from members’ pensions to pay for advice given to their employer
We are still waiting to see how the Pension market will react to this news and as soon as we have this information, we will be in touch. Should you wish to discuss any of the issues listed above, then please feel free to contact us on 0844 406 0027 or at firstname.lastname@example.org
Tax and legislation are liable to change. This information is based on our current understanding of UK law and HM Revenue & Customs practice and legislation we believe may apply in the future. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of the information contained herewith. It is recommended that professional advice is sought prior to entering into any financial arrangement.