A crackdown on excessive costs and charges of older workplace pension schemes, by the government and the Financial Conduct Authority has saved members £24bn over the past four years.
The work to curtail high costs and charges followed a report by the Independent Project Board in 2013. At the time, the report found that £25.8bn of assets in defined contribution schemes were potentially exposed to charges of more than 1 per cent. This is because the schemes were not covered by the government’s charge cap on workplace schemes used for auto-enrolment.
As a result of the work carried out, this has now been reduced by 90 per cent. The FCA said the remaining high costs and charges, amounting to £0.9bn fall predominantly into two categories.
“Some providers set out reasons why they believe certain of their products offer value for money even where charges are in excess of 1 per cent. Where our analysis has resulted in the valuable benefits being justified in line with the IPB review, these have been accepted.
“However, in other cases IGCs have challenged this position. We are unable to confirm in these cases that the provider is meeting the requirements of the IPB regarding value for money on these products, until such time as discussions between the provider and IGC have concluded. And for a small number of providers, in both contract-based and trust-based schemes, there are actions that will not be delivered until next year,” the FCA said.
Minister for Pensions and Financial Inclusion, Guy Opperman said that no one that saves into a pension scheme should have concerns that their savings are at risk of being eroded by excessive charges.
“That’s why we are tipping the balance back in favour of consumers, who will now see their schemes delivering better value and increasing their income in retirement. By working closely with regulators and providers, we are committed to getting consumers the best possible deal.”
Of the £25.8bn of assets covering 1.5 million pension pots, between £5.6bn and £8bn was potentially exposed to charges above 2 per cent, and nearly £1bn to charges above 3 per cent, with the latter often members with small pension pots worth less than £10,000.
The government and FCA continue to work with the small number of remaining providers to eliminate high costs and charges by the end of 2018, and has been clear that it will legislate, if necessary.
“We have written to all providers that participated in our review setting out our clear expectation that they will continue to ensure that customers are not exposed to high costs and charges that are poor value for money, and that they engage on an on-going basis with their IGCs, trustees and members as appropriate to achieve this.
“And for the small number of providers (and schemes) where residual actions will be delivered next year, we have reiterated our expectation that they take the necessary actions and consider adopting temporary measures until implementation of permanent actions,” the FCA said.