Pensions minister Steve Webb has confirmed that the charge cap for defined contribution schemes will be delayed until at least April 2015.
Speaking at a CBI pensions conference today, Webb said both changes to auto-enrolment and a single package of reforms to quality standards for defined contribution scheme governance and transparency would come into effect 12 months later than planned.
Webb said: 'We did a consultation and there was a view that changing the rules at 12 weeks notice for something that requires people to do in 12 months notice didn't quite stack up.
'I think that's a fair point. That is why the changes that we will make will [take effect in] April 2015. So the changes to scheme quality, charges, governance and transparency... will apply to firms who stage from April 2015.'
The Department for Work and Pensions' October consultation proposed three possible capping regimes: 1% of funds under management; a lower charge cap of 0.75% of funds under management; and a two-tier 'comply or explain' cap. It suggested that the cap take effect in April this year, but many in the pensions industry said the government's timescale was far too restricted.
Webb said claims that the delay was a U-turn on improving DC standards were all 'nonsense'.
Delaying the charges by a year would ensure that someone who was on average earnings of £25,000 and on mandatory auto-enrolment contributions would 'at most' pay an extra 1% in charges, which works out to £40 or 8p per week.
'I think that is a price worth paying,' Webb said.
However, he refused to reveal details of a potential charge limit and wider reforms, saying they would be published in due course.
Speaking to The Actuary at the event, Paul Jayson, a partner at actuarial firm Barnett Waddingham, said looking at charges was important but it was better to get the structure of a pension scheme right first. He said the more important issue was the quality of the investments.
'Investment management performance is more important than charges and you have to pay a bit more to get better quality,' said Jayson.
'What I wouldn't want to do is stifle innovation in the market by having charging handcuffs on too early.'
Helen Forrest, head of policy at the National Association of Pension Funds, said: 'The NAPF has consistently counselled the government not to rush the implementation of any cap on pension scheme charges so we are delighted by today's announcement confirming that any cap on charges will not be introduced before April 2015.
'Our members continue to work extremely hard to implement automatic enrolment effectively and successfully. Providing these employers with at least twelve months' notice of any changes in the rules relating to charges is a sensible step.'
