Pension provider Aegon has warned the government not to act rashly on auto-enrolment scheme charges, saying an outright cap may harm the policy.
The Department for Work and Pensions (DWP) released a consultation today outlining options on how charges on auto-enrolment schemes would work. One option is a ban on all charges above 0.75% a year.
It comes in response to the Office of Fair Trading (OFT) report into the UK pensions market, which concluded it was not offering value for money for many savers.
Aegon regulatory strategy director Steven Cameron said:“The OFT’s detailed analysis of workplace pensions highlighted that value for money does not mean the lowest possible price. We need a full, frank and informed discussion on charge levels and shapes against a backdrop of making a success of auto-enrolment.
“Low charges have obvious surface appeal but they can also produce adverse consequences for customers – poorer quality of services, less choice and loss of investment in innovation and development.”
Cameron said the provider is both committed to the success of auto-enrolment and providing value for money.
"Next year, smaller employers will start auto-enrolling their employees. They don’t benefit from the same economies of scale as the largest employers who’ve already auto-enrolled. To protect our existing customers, private pension providers can’t take on new schemes at a loss.
"Therefore, introducing too low a cap will mean many employers will be forced into using NEST. Surely a competitive and innovative private market alongside NEST is in the best interests for savers.”
Aegon has committed to carry out a detailed audit of all pre-2001 workplace pension schemes and those with higher charges. This will identify any schemes not meeting emerging value for money principles and where adjustments may be needed. It has also committed to set up an independent governance committee, which will drive value for money on behalf of our pension scheme members.
Cameron said: “We agree with the OFT that broader based value for money principles are much less likely to create unintended consequences than a blunt price cap. There’s a real risk here that the cap simply won’t fit.
“Implementing further blanket market interventions needs very careful consideration. Driving down charges may win votes and secure popular press headlines, but pensions policy needs to look beyond the next general election and do what’s right for future generations.”
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