Commenting on the DWP’s policy paper Better workplace pension: putting savers’ interests first, Will Aitken, a senior consultant at Towers Watson said:
“The new development is the charges that aren’t being capped, not those that are.
“The cap will not apply to former employees who stopped contributing to a scheme’s default fund before 6 April 2015. Even the past savings of some current employees could be out of scope if their future contributions are diverted to a new fund that charges less.
“The Government has said that members of relevant schemes who are not covered by the cap should at least be given the choice to transfer their savings to a lower cost option. Such transfers need not happen automatically but may do where pension providers are concerned about the reputational effects of higher charges or where the new Independent Governance Committees throw their weight around.
“It also transpires that the ban on increasing charges when someone stops contributing will only apply where contributions cease from April 2016.
“Most large employers’ schemes have charges that are comfortably below the cap. 90% of the FTSE350 employers’ schemes that we surveyed had Annual Management Charges in their default funds below 0.75%, though the Government’s measure of charges is slightly broader. Of course, there is more to offering good value than being below the cap – 0.75% is a lot to pay if all you’re getting is a basic product – but most people saving in large employers’ schemes will not be subject to the more eye-watering charges that the Government sometimes draws attention to.”