Pension charges cap announcement

Reacting to today’s news that the government is to cap pension charges at 0.75% from April 2015, and that from April 2016 schemes will be prohibited from taking money from peoples’ pension schemes to pay for sales commission, Malcolm McLean says:

“The government has gone for the toughest of the three options that was originally put forward for use as a potential charge cap.

“On the plus side, at least the decision that has now been made to introduce a 0.75% charge cap (excluding transaction charges from April 2015), will remove some of the uncertainty employers currently planning their A-E arrangements are experiencing.

“On the negative side, however, a 0.75% cap will obviously limit the ability of employers to choose a scheme that may well have higher charges but delivers far better outcomes for their staff.

“On the commission ban, this will be seen as a huge blow to advisers, which some estimates suggest could cost them £150 million and 1000 jobs.

“Of the information currently available it is not clear whether schemes that have already been auto-enrolled will have to apply this cap, and of course there is still uncertainty as to what the 2017 review will bring.”