Today, the DWP has published the government’s response to its Permitted Charges and Defined Contribution Pension Scheme consultation which launched in May
Commenting on the response to permitted Charges within DC schemes , Steven Cameron, Pensions Director at Aegon, said:
“The Government’s decision to ban flat fees being deducted from auto-enrolment pension pots of under £100 to avoid them being wiped out is understandable. However, a pot of £100 will make no difference to income in retirement, and even if it could be annuitised, would generate only a few pence per month. With this in mind, we see these changes as more of a symbolic gesture than a genuine means of improving retirement outcomes. The decision means that those firms who have offered this choice of charging to employers, in return for a lower fund based charge, will now need to update systems and communications ahead of the April 2022 introduction. This will take resource away from many other more important developments such as preparing for pension dashboards. Bearing in mind flat fees where they exist are typically small, the monetary impact on individuals of a year’s delay would also have been very small.
“We’re pleased however that the Government is not rushing into universal pension charging across all auto-enrolment pensions. There’s a real risk doing so will cause serious damage to the pensions market, which is currently vibrant and competitive offering a range of propositions and employer choice with bespoke charging. Universal pension charging could encourage a race to the bottom in terms of charges and ‘vanilla’ pension propositions as innovation will be discouraged and competition stifled, potentially filtering down to poorer member outcomes.”