Pensions market shake-up puts savers first and enshrines value for money in law
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New measures which will protect savers’ interests and boost many people’s personal pension pots are outlined by Pensions Minister Steve Webb.
New measures which will protect savers’ interests and boost many people’s personal pension pots by thousands of pounds are outlined by Pensions Minister Steve Webb today (17 October 2014).
New plans unveiled to Parliament today confirm the government is to press ahead with action to root out rip-off charges and apply new governance standards across all qualifying workplace pension schemes from April 2015.
Draft regulations are published today that confirm charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75% annually.
Small differences in charges can have a major impact on a pension pot by the time a person retires. An average earner due to accumulate a pension pot of around £30,000 could benefit to the tune of £1,600 by saving in a scheme charging 0.75% compared to one which charges 1.5% – and for many the boost could run into tens of thousands of pounds.
The draft regulations also ban unfair charges and hidden costs that could, without action, severely reduce people’s pension savings over decades.
The government will bring forward further rules and regulations to ensure that from April 2015 members of workplace personal pensions will not be charged consultancy fees for advice to their employer, and from April 2016 savers in all types of scheme will no longer be charged commission or consultancy fees. Nor will they have to pay charges for pension saving which increase when they change jobs.
Pensions Minister Steve Webb said:
Consumers have had a raw deal from the market for too long. A pension is one of the biggest investments you can make in your lifetime, yet many people have seen the savings they have put by all their working life whittled away by high or needless charges they may not even be aware of.
We are taking strong action to restore confidence in pensions by capping charges, banning hidden costs and putting new standards in place to ensure everyone saving in workplace pensions gets the best possible value for money.
With millions of people now saving through automatic enrolment, we want to give them confidence that their hard-earned money is working for them and not disappearing in opaque charging structures and ending up lining the pockets of the pensions industry.
The level and scope of the charge cap will be reviewed in 2017.
The new governance standards will apply across all money purchase workplace pension schemes and will ensure that people running schemes understand the key components of scheme quality and have members’ interests as their priority.
Under the changes, trustees of pension schemes will be required to design default funds in members’ interests, keep them under regular review and ensure that core financial transactions are processed promptly and accurately.
They will have to assess the value of costs and charges borne by those saving in a pension, and they must have a chair of trustees who will be responsible for signing off an annual statement on how the quality standards have been met.
The 0.75% cap will cover all charges excluding transaction costs.
The draft regulations now open for consultation also include additional requirements to strengthen the independent oversight of mastertrust arrangements, which cover multi-employer occupational schemes.
The consultation closes on 14 November 2014.
Better Workplace Pensions: Further measures for savers was launched in March. The government set out a range of proposals including a cap on charges set at 0.75% in default fund agreements, a ban on high and unfair charges, proposals for minimum governance standards and to improve transparency across workplace defined contribution schemes.
The Financial Conduct Authority (FCA) has consulted on draft rules to introduce Independent Governance Committees.
Following consultation DWP will introduce these new measures in secondary legislation and the FCA will shortly consult on equivalent draft rules that will apply to providers of workplace personal pensions.
Following the Office of Fair Trading 2013 report, an independent review of legacy (pre-2001) and higher charging pension schemes is being undertaken and will report by the end of the year.
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