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Auto-enrolment default fund charge to remain at 0.75%

Written by: Paloma Kubiak
The government has confirmed the 0.75% charge cap for auto-enrolment default funds will remain as it’s “working broadly as intended”.

Default funds are used to invest workplace pension members’ money where they have not actively chosen a fund to invest in.

In April 2015,  the regulator, the Financial Conduct Authority (FCA), confirmed firms providing workplace pension schemes used by employers for automatic enrolment would have to cap the charges within default funds to 0.75% per year of funds under management.

However, the government undertook a review of the charge cap and after considering data which captured the views of more than 14 million pension members, it said “we do not feel that now is the right time to change the level or scope of the cap”.

A written statement by the Minister of Pensions and Financial Inclusion, Guy Opperman, read: “The cap is working broadly as intended, helping to drive down member-borne costs, whilst allowing flexibility to allow asset diversity or tailored services for members and employers.”

He added the government remains committed to ensuring auto-enrolment members are protected from unreasonable and unfair charges, and recognises there is on-going concern among consumers.

Former Pensions Minister, Steve Webb, who is director of policy at Royal London, said the decision strikes the right balance.

He said: “The charge cap was only introduced a few years ago and sought to strike a balance between protecting members against excessive charges whilst allowing for diversity amongst pension providers and avoiding a ‘race to the bottom’.

“In practice, many millions of workers already face charges well below the charge cap, and auto-enrolment remains a hugely attractive way of saving for retirement. With employee contributions benefiting from tax relief and often matched by employer contributions, the current system is providing good value for money for the vast majority of pensions savers.”

The government added it intends to examine the level and scope of the charge cap, as well as permitted charging structures in 2020 where it “expects there to be a much clearer case for change”.

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