23 Oct

5 Things To Know About The DWP Pension Charges Cap


In March of this year, the Department for Work and Pensions (DWP) announced measures to cap charges on pensions from April 2015 onwards and we break down what it all means.


The DWP has announced caps to pension charges in order to build a fairer society and reduce the amount of pension contributions “swallowed up” by charges and transaction costs. Quite simply, the measures will help savers but the DWP report published isn’t quite as simple. That’s why we are taking this chance to break down the 5 most important things to know about the proposals which went out for consultation.


1. Pension Charges Will Be Capped At 0.75%

If you take away just one thing from this blog post then let it be this: from April 2015 there will be a 0.75% cap on pension charges. That means that the cost of having a pension will go down for most savers and equates to a £195 million saving for savers over the next decade.

This charge cap will be brought in for the default funds of all qualifying schemes (those schemes that are used to comply with auto enrolment for employers). Pensions Minister Steve Webb said at the time of the announcement:

“Over the next 10 years, the new charge cap will transfer £200 million from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first.”


2. Scheme Governance Will Be Shaken Up

Along with the charges cap, there will be some changes to the ways in which schemes are to be governed.

All DC schemes will have to have a chair of trustees and DC trustee boards should have themselves or have access to the skills and knowledge to run the schemes properly.

There will also be a requirement for the providers of contract based schemes to run IGCs (Independent Governance Committees) which will act in members’ interests, recommending actions to their provider’s board.  


3. No Commission, Consultancy Charges & Active Member Discounts From April 2016

One year after the initial cap comes into play, commission will also be stopped as it will no longer be possible for commission to be deducted from members’ accounts.

Similarly, discounts for active members will also be removed in April 2016 and this has been justified given that DWP statistics find that the average employee is in a job for just four years. That means that most savers bear inactive charges for longer than they do active charges and this measure is designed to level out the two types of charges.


4. Advisers Will Soon Want To Renegotiate Fees With Employers

This is a very important point for employers to keep in mind.

Given the massive drop in income that financial advisers will face due to the changes, advisers across the UK will look to replace commission with fee arrangements. For many employers and advisers this is, therefore, a worrying time. At DAM, however, we aren’t as concerned and nor are our clients. Some other employee benefits advisers and corporate pension advisers will be asking for monstrous fees from their clients given their high overheads, but with DAM’s sustainable and efficient model, we can afford to negotiate less severe fee arrangements keeping our clients happy.

And if clients of other corporate pension consultants are unhappy with the fee arrangements being negotiated with existing partners, then there’s a place right here for them where something more reasonable can be worked out!


5. Pensions Are Suddenly Even Better Value For Money

With savers making further savings over their lifetime of pension contributions due to the lower level of charges, pensions are worth a lot more than they were a decade ago.

Add to that the fact that several other pension reforms are coming into place at the same time as the DWP charges cap in April 2015 and pensions have never looked more appealing. That makes this the perfect time to start looking into pensions and for employers, offering a corporate pension to staff is something which employees will appreciate like never before.

For a chat about what corporate pension options are available, you can get in touch and take a look at our corporate pensions advice page as well.

Photo credit goes to Images Of Money

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