Pensions cap: higher, higher, lower, lower

The pension fee cap debate continues

Hitting the headlines last week was Legal and General’s comment that the cap on charges for managing pensions should be set at the low end of the scale. Suggesting that the government’s planned 0.75 per cent cap on management fees is too high and should be revised to 0.5 per cent has attracted criticism from the industry, who are against any cap on fees, and the government alike.

The government’s consultation, ‘Reshaping workplace pensions for future generations‘, had been seeking industry input on three possible cap options. The deadline for final submissions was last week – the very day Legal and General released its comment – and as yet there has been no further news on what level will be selected.

Advisors to the government on the issue are warning against a cap set too low. It’s the concern that if a low fee is charged then this has an impact on the quality of the pension fund investment plan with some funds receiving a ‘paint by numbers’ service.

Whilst it has ruffled a few feathers, the comment made by Legal and General has fuelled an important debate. As millions of employees are auto-enrolled onto a company pension scheme over the next few years, the difference in fee costs between 0.5 per cent and 0.75 per cent will have a significant impact on the size of their final pension pot.

If you would like more information on auto enrolment or how to prepare your company and employees, look out for our forthcoming Definitive Guide to Auto Enrolment.

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