UK government publishes DC charge-cap guidelines, transparency rules
The UK government has moved to cap the charges borne by members saving into auto-enrolment defined contribution (DC) schemes, as its overhaul of the market continues.
Announcing the reforms in Parliament, pensions minister Steve Webb said the proposed 75 basis point cap on DC default fund charges would be in place by April 2015.
Schemes with all-inclusive annual and default fund charges will also see equivalent caps put into place.
The government will also compel DC pension providers to reveal fully all member-borne charges to either trustees or independent governance committees in the case of non-trust DC schemes.
In line with this, insurance providers are to be forced to ensure their schemes are independently scrutinised, also by April 2015.
Webb said the requirement for governance committees in non-trust schemes means there would be, for the first time, a body acting on behalf of members in every pension scheme.
The 75bps charge cap move by the government represents a much harder line than three previous options put out to consultation.
In October 2013, the Department for Work & Pensions (DWP) suggested imposing either an absolute 75bps or 100bps cap, or allowing a comply and explain mechanism between the two.
The consultation, however, led to further complications for the government, as it was forced to delay its response and suggested measures, with a cap initially expected to be in place by next week, and not 2015.
However, after eventually forging a response, the 75bps will also be joined by increased transparency requirements for pension schemes.
Under a new legal duty, trustees and independent governance committees will be forced to demand all charge data from providers, in order to scrutinise value for money.
The government is also to consult with the Financial Conduct Authority on how to define additional member transaction costs for disclosure, and how to include this in the cap.
“Over the next 10 years, the new charge cap will transfer £200m from the profits of the pensions industry to the pockets of savers,” Webb said.
“To shine some light into the dark corners of the pensions industry, we will enforce full transparency on all charges faced by pension members. People need to have confidence [they’re] putting money into good pension schemes where their money will be looked after.”
In additional moves, the government will also outlaw active member discounts, where charges are added when a member moves employers and ceases contributions.
It will also outlaw consultancy charging and commission, where members are charged, via the scheme, for services received by their employer or sales commission.