An independent audit of workplace defined contribution (DC) insurance products is set to examine the appropriateness of charging structures that are above a cap set by the UK government.
It was originally expected to audit only workplace DC products set up before 2001, after an investigation from the Office of Fair Trading (OFT), a former competition watchdog, highlighted fees in these schemes as a concern.
However, the committee said it had decided to use the charge cap as a baseline and audit all schemes above this limit, alongside those in its initial remit.
This is despite the government’s charge cap only covering auto-enrolment default schemes and not any of schemes within the audit’s initial remit.
“We have considered the implications of the charge cap proposed by the Department for Work & Pensions (DWP) for the scope of the audit,” the committee said.
“We have decided to include in the audit those schemes with charges above the cap. These are schemes that only have an annual member charge (AMC), and all member borne charges are between 0.75% and 1%.”
The new scope will now audit all DC workplace schemes set up before 5 April 2001 and schemes set up after this where member-borne charges, excluding transaction costs, exceed 1%.
It will also audit schemes that use combination charges, or more than one basic charge, regardless of when these schemes were set up.
Pensions minister Steve Webb introduced a 0.75% cap on charges for all default funds used for auto-enrolment to come into effect next April.
This includes schemes using all-inclusive fees, but excludes transaction costs while the government consults on the most appropriate method to include this.
However, while the cap only tackled high-charges for auto-enrolment schemes, a study from the OFT, published last year, found a legacy of high charges and poor returns within insurance products set up before 2001.
As a result, the OFT recommended these legacy schemes be audited as a better option to imposing a charge cap – which would affect some products such as guaranteed annuities.
The OFT did not propose any charge caps, warning of unintended consequences.
However, the government went against its advice is response to auto-enrolment funds.
Carol Sergeant, who chairs the board responsible for the audit, said the final report would be published at the end of 2014.
“It will set out the charging structures of in-scope workplace pension schemes, as well as show the impact of these charging structures on different types of scheme members,” she said.
“It will also include any IPB recommendations for industry-level actions.”
Steve Webb added: “The OFT identified £30bn of savers’ money in pension schemes with charges at risk of being poor value for money.
“It is right the audit looks closely at these arrangements.
“It is important all schemes give savers the confidence they are acting in their best interest.”
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