Pension fee changes confirmed to stop pots from eroding – what does it mean for you?
Pensions: Money Box caller talks impact of age differences
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The call to end flat fees on workplace pensions has finally been answered, preventing small pension pots from being eroded unnecessarily. Flat fee charges for specific workplace pensions will be banned on pots worth less than £100 from April 2022, as Government stops short of implementing a universal structure, which some say is a lucky escape.
The new threshold, known as ‘de minimis’ is to complement plans for a pension dashboard – which aims to help individuals keep track of all their smaller pension pots, enabling them to plan better for their retirement.
Essentially, any member’s pension savings that total £100 or less will be protected from flat fee charges.
This is likely to help the growth of pension pots left over when individuals change jobs and companies, although some argue it is little more than a “symbolic gesture”.
The DWP’s decision to not implement a universal charging structure follows feedback from the industry, collected by the Permitted Charges and Defined Contribution Pension Scheme consultation.
The consultation was launched in May this year to gather industry insight on this matter, which showcased industry responses against a universal system for defined contribution pension schemes.
Mainly this was due to the fact that costs and charges between different pension schemes are difficult to compare and that there could be a better alternative to a universal charging structure.
Minister for Pensions, Guy Opperman, exclusively told Express.co.uk: “We all know what a success Automatic Enrolment has been in getting more people saving into private pensions – with over 10 million employees paying into a workplace pension since 2012.
“But for some, particularly those who regularly take on short-term work and change jobs frequently, there is a greater chance that they will be automatically enrolled into new workplace pensions a number of times, building up a collection of deferred small pots.
“Removing flat fees on pension savings worth less than £100 will provide a boost to hundreds of thousands of people and help them enjoy the retirement they deserve.”
Steven Cameron, Aegon Pensions Director, criticised the reform as being a symbolic gesture, saying: “The Government’s decision to ban flat fees being deducted from auto-enrolment pension pots of under £100 to avoid them being wiped out is understandable.
“However, a pot of £100 will make no difference to income in retirement, and even if it could be annuitised, would generate only a few pence per month.
“With this in mind, we see these changes as more of a symbolic gesture than a genuine means of improving retirement outcomes.
“The decision means that those firms who have offered this choice of charging to employers, in return for a lower fund based charge, will now need to update systems and communications ahead of the April 2022 introduction.
“This will take resources away from many other more important developments such as preparing for pension dashboards. Bearing in mind flat fees where they exist are typically small, the monetary impact on individuals of a year’s delay would also have been very small.”
He added that while it is not an ideal situation at the moment, not rushing into universal pension charging for all auto-enrolment pensions has possibly helped the government avoid a serious risk of damage to the pensions market.
He continued: “Universal pension charging could encourage a race to the bottom in terms of charges and ‘vanilla’ pension propositions as innovation will be discouraged and competition stifled, potentially filtering down to poorer member outcomes.”
Head of pensions and savings at interactive investor Becky O’Connor commented: “Preserving small pots against erosion below £100 from flat fees will prevent the disappointment of a workplace pension falling in value to £0.
“However, even with this ban in place, it is still possible for the value to be eroded to just £100, which won’t go very far in retirement.
“Anyone worried about small pension pots being eroded by charges who has a number of them from old jobs could consider bringing them together in one place.”
She added that combining all of one’s other pension pots also has the advantage of reminding individuals that they have this saved up money in retirement.
She continued: “It’s disappointing not to see more at this stage from the DWP on what a fair charging system for pensions looks like.
“It is vital that pension costs and charges are better understood and more comparable for scheme members as fees can make a big difference to retirement outcomes.
“At the moment, millions of workers paying into a workplace pension are completely in the dark about whether they are getting good value.
“A more transparent and comparable charging structure could finally bring fees into the spotlight and enable people to make better informed decisions about which provider should look after their money.”
Express.co.uk has contacted the DWP asking for comment.
Source: Read Full Article