Auto enrolment charge cap

The DWP published a consultation paper at the end of October setting out various proposals for capping charges in defined contribution (DC) schemes, including those used for auto-enrolment.

Options set out in the paper for a cap on scheme charges for all members of default funds in qualifying schemes - ie those suitable for auto-enrolment - included a charge cap of 1% (ie the level of the current stakeholder pension cap), a lower charge cap of 0.75%, or standard cap of 0.75% but with the ability to use a higher cap of 1% if that could be justified by the employer to the Pensions Regulator.

The DWP's impact assessment statement indicates that by introducing a cap of 0.75%, 90,000 current schemes would need to be reassessed; at the higher cap, 25 - 35,000 schemes could be affected. This could mean that some schemes that employers have already set up to comply with the auto-enrolment requirements might no longer comply, and the employer would have to reassess their pension provision.

The consultation document also considers whether there should be a ban on charging former employees (ie deferred members) at a higher rate than active members.

Given that many employers have already begun the process of setting up schemes and will be enrolling their employees into pension schemes in 2014, it is interesting that this consultation has only now been produced. The consultation closed on 28 November 2013.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.