Auto-enrolment success hangs on pension charge reform
Pensions minister Steve Webb, in his bid to reform pensions and encourage Britons to save more, tried to rush through his piece de resistance in October; a cap on pension charges.
He wanted to limit charges for workplace pensions that fall under auto-enrolment by either setting an annual limit of between 0.75% and 1% or introducing a two-tier 'comply or explain' rule where any insurance company wanting to charge more than 1% would have to explain why they should be able to do so.
It was a noble bid to try and restore faith in UK pensions which have come under fire for their opacity and high commissions and charges but it has been scuppered by his haste.
The Regulatory Policy Committee (RPC), which assesses the impact of changes to government policy, said the Department for Work and Pensions (DWP's) plans for a cap were 'not fit for purpose' because it does not set out why a cap would not hurt the pensions industry.
In its proposition the DWP said the cap would not have an impact on the pensions industry but it's obviously to anyone with a basic grasp of maths that it will mean less profit for an industry that has charged well over the odds for a long time.
Many may be thinking that the pensions industry has had enough cash off pension savers so the scales are due to be equalised and they would be right but it has to be equalised in the right way and that involves satisfying the RPC.
The plan for the cap may have been rushed but it is pushing in the right way and is essential to making auto-enrolment work. The government estimates that up to nine million workers will start saving for retirement for the first time over the next few years and we need to make sure they stay opted in; they're only going to do that if they feel like they're getting a fair deal on their pension.
The pensions industry has taken from people for too long and bamboozled them with complex charging structures. The delay may be a bump in the road but we need to make pensions transparent for the sake of Britons' future retirements.