Banning consultancy charges on the pensions schemes used for auto-enrolment will be a significant step towards ensuring people get value for money from retirement saving, the chair of the Commons work and pensions committee has said.
Dame Anne Begg today warned that consultancy charges had the potential to undermine both confidence in AE and in pension saving more generally and welcomed the Department for Work and Pensions' announcement last week that it planned to outlaw them.
She also welcomed accompanying proposals to consult this autumn on whether charges should be capped on all defined contribution pension default funds - the investment option used by most savers.
'Under auto-enrolment, millions of people, including many low earners, will be brought into pension saving for the very first time,' Begg said 'Central to the policy's success is that people feel they are getting good value for money. A ban on consultancy charges is a significant step towards achieving this.'
She noted, however, that more action was need to address the issue of costs and charges and highlighted the committee's report, published last month, which called for tougher action in this area.
'Consultancy charges are only one element within the plethora of costs and charges that can be applied to pension schemes, however,' she explained. 'Whilst the trend towards lower charges is welcome, the potential for consumer detriment where high charges persist remains serious.'
'Our report called on the government to act on charges without hesitation if it becomes apparent that people are at risk of detriment. I am, therefore, pleased to see the government taking action in this area and welcome its plans for a consultation on introducing a charge cap.'
The National Association of Pension Funds gave a less positive response to the DWP's plans. Chief executive Joanne Segars said a blanket ban on consultancy charges was 'overly simplistic'.
Segars said: 'Employers should not be allowed to pass on charges for advice that does not directly benefit the saver, such as guidance on complying with auto-enrolment laws.