UK pensions minister increases pressure with new measures on DC charges
The UK pensions minister is to act on charges for defined contribution (DC) members months after legislating for a 75-basis-point cap.
Announcing the launch of a command paper, Steve Webb, a Liberal Democrat MP, said the paper would delve into the “murky” world of transaction costs paid by DC scheme members.
Trustees of DC schemes will have a duty to investigate transaction costs and establish exactly how much scheme members are paying, and for what service.
Speaking at the UK National Association of Pension Funds Annual Conference in Liverpool, Webb said: “This document places a duty on trustees to find out, ask questions and establish where money is going out and if it going for good reason.
“We wondered whether to include transaction costs in the charge cap for April 2015, but we realised we didn’t have a clue.
“We didn’t know what number to put in and what to include because we didn’t have the information.”
Webb again shot down requests from the industry to postpone the 75bsp cap, as it clashes with upcoming changes announced in this year’s Budget.
He said, regardless of the start date, the government will launch its strategy on charges in April.
“April 2015 is the charge cap – it is not an event, but the first stage in the process,” Webb said.
“Gone are the days when a government will allow a government-approved product to charge 1.5% for 10 years.”
Webb said his progressive action on driving value for money included the removal of charges on leavers and the promise to re-evaluate the charge cap in 2017 to incorporate transaction costs.
“Transaction costs are the murky secretive cupboard of the industry,” he said. “Trustees do not know what is happening to their members’ money and what is being sliced out.”
Webb also defended his department and government colleagues against accusations it was working too slow on detail for the Budget reforms.
From April 2015, DC savers over the age of 55 will no longer be forced to annuitise savings and have the freedom to use cash as they wish.