The Government is acting to protect consumers by announcing a two-pronged plan to tackle high and inappropriate pension charges.
Its first action will be to ban consultancy charges in automatic enrolment schemes.
The Government also plans to publish a consultation this autumn, in light of a forthcoming OFT report on the workplace pensions market. This consultation will set out proposals including a cap on default fund charges in Defined Contribution schemes. Legislation in the Pensions Bill published today will enable the Government to take targeted and effective action.
In the past six months, the Government has conducted a thorough review of consultancy charges, and concluded that existing measures to prevent advisers deducting high charges from members’ pension pots are inadequate.
It also found that consultancy charges can have a disproportionately negative impact on people who move jobs regularly.
Minister for Pensions Steve Webb said
With millions of people taking up pension saving for the first time under automatic enrolment, we have to give people confidence that they will get good value for money.
That is why we are banning consultancy charges, where scheme members end up paying for advice given to their employer. In addition, the OFT is investigating the whole workplace pensions market and we will act promptly and vigorously later this year in the light of their findings.
The ban will apply both to occupational and personal pension schemes, and the Government intends to lay regulations before Parliament as soon as possible.
In January, the OFT launched a market study to examine whether defined contribution workplace pension schemes are set up to deliver the best value for money for savers. A key aspect of its investigation is whether there is sufficient pressure on pension providers to keep charges low, and the extent to which information about charges is made available to savers.
The Pensions Bill also sets out the Government’s plans for a flat-rate state pension, which will be fairer and less complex than the current system of add-ons and top-ups. This will start in April 2016 and be set above the level of the basic means test.
Other measures in the Bill include:
Bringing forward the increase in State Pension age to 67 to 2026-28
Introducing a framework for the regular review of State Pension age
Provision for a system of automatic transfers of small pension pots
Introduction of the Bereavement Support Payment
A new statutory objective for the Pensions Regulator.
The Government is also publishing an updated impact assessment on the single-tier pension, and its response to the Work and Pensions Select Committee’s report on the single-tier provisions in the draft Bill.
