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DWP under fire over auto-enrolment charge cap plans

by Alex Steger on Dec 19, 2013 at 08:14

DWP under fire over auto-enrolment charge cap plans

The Department for Work and Pensions' (DWP) plans for a cap on auto-enrolment scheme charges have been called into question.

In October the DWP proposed to cap pension charges for auto-enrolment scheme at 0.75% or 1%, however it may have to go back to the drawing board after a government body said it had failed to properly assess the impact a cap would have on the pensions industry.

The Regulatory Policy Committee (RPC) heavily criticised the department’s failure to conduct a satisfactory assessment of the impact of a charge cap.

The RPC, which is an independent government body, said the DWP’s impact assessment was ‘not fit for purpose’ and did ‘not adequately demonstrate’ why a charge cap was the right solution.

It said there were a number of costs associated with a charge cap which had not been identified, including the cost to providers of communicating new charges and the risk that the cap would become a ceiling, with some providers putting prices up rather than down.

It said the DWP had failed to consider the cost to businesses of setting up alternative pension provision and that it was unclear how a charge cap ‘would address the problems of lack of awareness and lack of transparency in the information supplied by pension providers’.

Tom McPhail, Hargreaves Lansdown head of pensions research, said the report cast doubt over the plans.

‘This will almost certainly mean a delay in the introduction of any charge cap on pensions, if one is introduced at all,’ he said.

‘The DWP conducted this consultation in a tearing hurry, in fact they rushed it through so quickly that they failed to conduct their regulatory impact assessment properly. This means that the entire consultation process is now in doubt and will probably have to be re-run.

‘If the impact assessment figures were wrong then everyone involved in the consultation including employers, pension providers and the DWP’s own officials will have to reconsider their conclusions from the consultation.’

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11 comments so far. Why not have your say?


Dec 19, 2013 at 09:42

Oh I can't wait for the Daily Hate to put this story on the front page.

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The Garden

Dec 19, 2013 at 09:47

A pension offering should be so much more than just charges alone but it does depend on what the employer requirements are and also their budget.

Sometimes you get what you pay for. Educating employees to actively take an interest in their savings and investments is also key.

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Jonothan McColgan

Dec 19, 2013 at 09:56

What is infuriating is the lack of understanding of the impact of the timing. Their review findings are not presented until the end of April 2014. The tidal wave of businesses needing to provide pensions starts in May. How are they to know if their pension provider will accept them or not?

I am working on a client that stages in May 2014 and we have a scheme that meets their needs perfectly (including software). However the cost is 0.8%pa which is marginally above the cap. The provider has confirmed they will not reduce this if the cap comes in, so they would pull the scheme. So do we use a less appropriate scheme as it is cheap or take the chance?

They have had long enough to get this right. Just give it a chance to bed in before writing any new legislation.

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Scottie & Long Streak

Dec 19, 2013 at 10:10

Very good points made by Jonothan.

I have always been a firm believer that financial strength should be the number one factor in selecting a pension provider and can't understand why the world has become obsessed with cheap charges. Equitable Life had low charges and look what happened to them. Their DTI returns every year (before the House of Lords ruling on guaranteed annuity rates) showed a very worryingly free asset ratio, which I believe ultimately lead to their downfall. In my experience, my clients have always been more concerned with financial stability than charges.

When will the DWP and NEST realise that Stakeholder pension providers struggled to make a profit on a 1% AMC, and reducing this further will put a huge strain on reserves. This will then limit choice for the consumer as perfectly competent providers are forced to pull out of the pensions' market.

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Dec 19, 2013 at 10:18

It is a disgrace that this is still being talked about, talk about "last minute .com"

DWP not fit for anything.

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Nigel Bracken

Dec 19, 2013 at 12:19

Resign Webby - you know it makes sense

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Jonathan Kirby

Dec 19, 2013 at 14:10

Can someone remind which part of government/quasi government has been found fit for purpose?

Answers on a postage stamp.

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Dec 19, 2013 at 14:20


Dissolving Parliament (in small writing)

Do I get a prize?

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Alex Morrison

Dec 19, 2013 at 15:05

Here we go again on the merry-go-round of governments departments failing to investigate something properly, then getting a second chance, all at a cost to someone else e.g. tax payers. So they get to "double-dip" the pot.

I'm beginning to think they fail on purpose so they can keep drawing their salaries for longer.

Why not instead fine them for the failure so they buck up their ideas and do it right first time? Well I'll be blowed, a flock of pigs just flew past my window in Starbucks......or was that Santa test driving his new sleigh before next week?

Give Me Strength!

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Dec 19, 2013 at 17:36

A fabulous example for a government department doing what government departments do best, creating more work for government departments and more bulls**t to spend other peoples money on!!!

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Julian Stevens

Dec 20, 2013 at 08:41

I think that more and more providers will simply withdraw altogether from the AE arena. The more the government interferes with the terms on which providers are allowed to offer such schemes, the less commercially viable the whole proposition will become.

I remember 10 years ago discussing stakeholder pensions with an AEGON representative and he said they were losing money hand over fist on it. I replied "Then why did you ever bother getting involved with it? You've done neither yourselves or your shareholders any favours at all, quite the opposite in fact." He had no reply.

Reportedly, Scottish Widows have set a minimum number of 400 members for AE schemes and many others are likely to follow suit. As more and more employers approach their staging deadline, there'll be an increasing logjam of schemes that they and their advisers are trying to get set up but find they simply can't. All they'll need on top of that is a NEST systems failure and the chaos will reach crisis point.

I'm very glad to be having nothing whatsoever to do with it.

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