The government have this week confirmed that the 0.75% charge cap for auto enrolment default funds will remain.
When auto enrolment was first introduced in 2015, the Financial Conduct Authority confirmed that firms providing workplace pension schemes would have to cap the charges of their default funds to 0.75% per year of the funds under management. However, more recently this decision has been under review by the government following a data capture exercise that looked at the views of more than 14 million pension members. That review has now concluded and the cap will now remain as it is.
A written statement by the Minister of Pensions and Financial Inclusion, Guy Opperman, read: "The cap is working broadly as intended, helping to drive down member-borne costs, whilst allowing flexibility to allow asset diversity or tailored services for members and employers."
He also added that the government recognises that there is an ongoing concern among consumers about unreasonable and unfair charges and that the government will remain committed that auto enrolment members will stay protected from these.
The decision to remain with the 0.75% charge cap for auto enrolment default funds has been broadly welcomed by the industry as a whole. Sir Steve Webb, the former pensions minister who was instrumental in the introduction of auto enrolment was positive about the decision:
"This is a welcome and balanced decision by the DWP. The charge cap was only introduced a few years ago and sought to strike a balance between protecting members against excessive charges whilst allowing for diversity amongst pension providers and avoiding a "race to the bottom". In practice, many millions of workers already face charges well below the charge cap, and automatic enrolment remains a hugely attractive way of saving for retirement. With employee contributions benefiting from tax relief and often matched by employer contributions, the current system is providing good value for money for the vast majority of pensions savers.