Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • March 2014
03

DC charge cap set at 0.75%

Open-access content Thursday 27th March 2014 — updated 5.13pm, Wednesday 29th April 2020

Charges on defined contribution pension schemes will be capped at 0.75%, pensions minister Steve Webb announced today as he set out a series of measure that he said would deliver value-for-money to savers and boost transparency.

2

Pledging an end to 'rip-off pension charges', Webb confirmed that the charge cap would be introduced on the default fund of all qualifying schemes from April 2015. New rules to ban hidden costs were announced.

A Department for Works and Pensions consultation last year explored the possibility of capping charges on auto-enrolment schemes. It was originally proposed that the cap be introduced this April, but following industry objections, the date was pushed back.

Speaking today, Webb said the government was the first to get an 'iron grip' on pension charges. 'We are going to put charges in a vice; and we will tighten the pressure, year-after-year,' he said.

'Over the next ten years, the new charge cap will transfer £200m from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first.'

Webb added that people needed to have confidence that they were putting money into good pension schemes where their money would be looked after.

'The measures we are announcing today will make sure that we are seen as world leaders in transparency and value for money,' he said.

According to DWP figures, an individual earning £20,000 would save around £35,000 over their lifetime if they saved in a scheme with a 0.75% charge compared to a 1% charge. 

For schemes with combination charge structures, the government has also set out equivalent caps.

The DWP has grouped together three categories of pension charges. These are: payments for sales commissions; charge hikes when people are no longer employed but leave money in the company's pension schemes; and 'consultancy charges' where members have to pay for advice given to their employer.

Responding to the announcement, Nick Salter, president-elect of the Institute and Faculty of Actuaries said low and capped charges do not guarantee good pension outcomes.

He said: 'In this respect contributions and investment returns will continue to have a very significant impact and the further proposals to establish Independent Governance Committees, to ensure that scheme members' interests are properly considered, may in time be viewed as an even more important reform.'

Looking ahead, he said: 'Defining what is incorporated within charges, and the charges that must be displayed by pension providers, will make comparisons of pensions much simpler and that will help employers as well as individuals looking to identify the right scheme for them.' 

The Association of British Insurers said it remained opposed to a cap, noting that average charges were at their lowest ever levels.

But director general Otto Thoresen added: 'Despite this, the government think a charge cap is necessary, and in this context the decision to phase in the implementation of these changes is helpful, as is the intention to review the best way to improve transparency on transaction costs before decisions are made in 2017.

'The implementation of auto-enrolment, combined with the radical reforms in last week's Budget, have created a challenging environment for employers and pension providers.'

At Hargreaves Lansdown, head of pensions research Tom McPhail agreed that the decision to phase in the cap was a sensible one as it gave the industry reasonable time to accommodate the changes.

'The charge cap will only apply to default funds at the outset. This is a sensible decision as it would be wrong to prevent investors from benefitting from specialist active management if they wish to do so.' 

Lee Hollingworth, head of DC at actuaries Hymans Robertson, welcomed the 0.75% cap, noting that every 1% increase in annual management charges wipes out 20% of a pension pot.

'A flexible low cost pension savings market has to be the right objective in order to encourage people to save more,' he said.

'Questions do remain to be answered, not least information on transaction costs. Transparency on these fees will present significant hurdles for the industry. It's going to be hard for fund managers to give an accurate figure in advance for transaction costs for example.'

But, Jonathan Lipkin director of public policy at the Investment Management Association, said a cap was not the best way forward and the main focus should be on improving governance.

 

 

 

 

 

This article appeared in our March 2014 issue of The Actuary .
Click here to view this issue

You may also be interested in...

Treasury heralds greater pension choice as changes take effect

More than 400,000 people are set to benefit from the government’s pension changes, some of which took effect today, the Treasury has claimed.
Thursday 27th March 2014
Open-access content
2

PM: pension lump sums 'will count towards care support'

Retirees who withdraw their pension pots in bigger cash lump sums could end up paying for their own long-term care needs, Prime Minister David Cameron has warned.
Wednesday 26th March 2014
Open-access content

Defined ambition schemes 'help implement Budget's pension reform plan'

Government proposals to allow greater freedom in workplace pension design and risk sharing would help implement the wholesale reforms to private pensions announced in last week’s Budget, the Association of Consulting Actuaries has said today
Wednesday 26th March 2014
Open-access content

PTL: trustees 'can't comply with government pension reforms'

The government has created a ‘nightmare’ timeframe for defined contribution trustees and should delay the introduction of its pensions reforms, trustee provider PTL urged today
Monday 24th March 2014
Open-access content

DB deficit total rose to £164bn in March, says JLT

The combined deficit of the UK’s private sector defined benefit pension schemes ended the month at £164bn, according to estimates published by JLT Employee Benefits today.
Tuesday 1st April 2014
Open-access content

Webb hails State Pension top-up

Details of the so-called State Pension top up, which allows people to boost their retirement income by making extra National Insurance contributions, have been published and hailed as a ‘good deal’ by the pensions minister.
Wednesday 2nd April 2014
Open-access content

Latest from Pensions

ers

By halves

Reducing the pensions gap between men and women is a work in progress – and there’s still a long way to go, with women retiring on 50% less than men, says Alexandra Miles
Thursday 2nd March 2023
Open-access content
rdth

Make My Money Matter's Tony Burdon on the practical power of sustainable pensions

Years working in international development showed Tony Burdon, head of Make My Money Matter, that sustainable pensions can harness trillions of pounds to build a better world – at a scale governments and charities can’t. He talks to Travis Elsum
Wednesday 1st March 2023
Open-access content
KV

Liability-driven investments: new landscape

What now for liability-driven investments, after last year’s crash in the market? Pensions experts Rakesh Girdharlal and Moiz Khan say it should lead to a more balanced approach
Wednesday 1st February 2023
Open-access content

Latest from Position

TPR publishes coronavirus guidance

The Pensions Regulator (TPR) has published guidance to help UK pension trustees, employers and administrators deal with the financial and regulatory risks posed by coronavirus.
Monday 23rd March 2020
Open-access content
2

Expert advice

This edition of the magazine focuses on data science and its applications, which will be a recurring theme for the IFoA.
Friday 28th February 2020
Open-access content
2

Tesla sparks fears of insurance market overhaul

That is according to a new report from Moody's, which highlights how Tesla has already started offering premiums that are up to 30% cheaper than those of mainstream insurers.
Friday 14th February 2020
Open-access content

Latest from March 2014

2

European insurers 'ready for Solvency II'

Almost 80% of European insurers expect to fully meet all Solvency II requirements before the January 2016 deadline, according to financial consultants EY.
Monday 14th April 2014
Open-access content
ta

BRICs countries 'face heightened political risk'

All five of the emerging-market BRIC countries will face increased political risks this year, according to analysis by Aon Risk Solution.
Friday 11th April 2014
Open-access content

DWP halves auto-enrolment opt-out forecast

The Department for Work and Pensions has slashed its forecast of how many people it expects to opt out of auto-enrolment by half.
Friday 11th April 2014
Open-access content

Latest from inline_local_link

2

COVID-19 forum for actuaries launched

A forum for actuaries has been launched to help the profession come together and learn how best to respond to the deadly coronavirus sweeping the world.
Wednesday 25th March 2020
Open-access content
2

Travel insurers expect record payouts this year

UK travel insurers expect to pay a record £275m to customers this year as coronavirus grounds flights across the world, the Association of British Insurers (ABI) has revealed.
Wednesday 25th March 2020
Open-access content
2

Grim economic forecasts made as countries lockdown

A sharp recession is imminent in the vast majority of developed and emerging economies as the deadly coronavirus forces businesses to shut down across the world.
Tuesday 24th March 2020
Open-access content

Latest from 03

2

European insurers 'ready for Solvency II'

Almost 80% of European insurers expect to fully meet all Solvency II requirements before the January 2016 deadline, according to financial consultants EY.
Monday 14th April 2014
Open-access content
ta

BRICs countries 'face heightened political risk'

All five of the emerging-market BRIC countries will face increased political risks this year, according to analysis by Aon Risk Solution.
Friday 11th April 2014
Open-access content

DWP halves auto-enrolment opt-out forecast

The Department for Work and Pensions has slashed its forecast of how many people it expects to opt out of auto-enrolment by half.
Friday 11th April 2014
Open-access content
Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Leading Insurer/Asset Manager – Pricing Actuary (Mortgages)

London (Greater)
Competitive
Reference
148750

Senior Consultant - Risk Settlement - Any UK Location - Up to £100,000 plus bonus

London / Manchester / Edinburgh / Remote
Up to £100,000 + Bonus
Reference
148832

Finance Transformation Actuarial student/Qualified Actuary

London (Central)
£50,000 - £75,000 depending on experience
Reference
148830
See all jobs »
 
 
 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ