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.’
A spokesman for the DWP denied that the RPC’s report would have an impact on the charge cap proposals.
‘We do not agree with this rating, which has no implications either for our proposals or for the consultation process. The reason for consulting on a charge cap was to gather evidence about the potential impact of our proposals on savers and the industry. Our final decision will be based on evidence we have received, not on our initial impact assessment.’