31% have not heard of pension charge cap

Pension pot

Nearly a third (31%) of respondents have not heard of the pensions charge cap that will come into force in April 2015 or have not been informed of this by their provider or adviser, according to research by Close Brothers Asset Management.

Its Business barometer survey, which questioned more than 900 employers across the UK, also found that although 30% of respondents with pension schemes were aware of the charges, they were still awaiting revised terms from their provider.

In its draft regulation paper Better workplace pensions putting savers’ interests first the government confirmed that charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75% as announced in its command paper, published in March.

The 0.75% cap will cover all charges excluding transaction costs. It will be reviewed in 2017.

The research found that a third (33%) of respondents already have an annual management charge (AMC) below the cap.

A further 6% of respondents are looking at moving to a new scheme because their existing provider intends to apply an additional employer charge.

One impact of the cap is that pension providers will shortly cease paying some types of commission to pension advisers, meaning advisers will seek to replace this with fee arrangements.

Some 42% of respondents with workplace pensions schemes said they will not be affected because their pension adviser already works on a fee basis, while nearly a quarter (23%) have not yet been made aware of the issue by their adviser.

A further 34% of respondents have discussed the need to pay a fee for services with their adviser.

Awareness of the cap is at its highest in Scotland, at 38%, followed by north east England at 34%.

Maxine McIntyre, head of corporate proposition at Close Brothers Asset Management, said: “The charge cap is a huge step forward in ensuring that employees’ savings are not depleted.

“However, with advisers seeking to make costs up elsewhere, smaller employers may naturally be concerned about unexpected costs or their resources being stretched.

“There are ways for employers to ensure they are introducing cost-effective solutions to meet their auto-enrolment obligations, and this does not necessarily require a huge amount of time and additional cost.

“By looking at how best to do this now, employers will find it is far easier to take control of the process before the reforms come into play next year, and avoid any unforeseen costs.”