Make or break day for the pensions charge cap

Something in the air

 

Pensions Minister Steve Webb is expected to deliver an announcement this morning at the CBI Pension Conference on the timing and severity of the proposed cap on the charge of a default fund in a qualifying workplace pension.

Not the qualifications; this is not going to change the face of the funds and insurance industry, but it is a significant intervention into a multi-billion pound market, most of which is tied up in legacy pensions,

Whatever he says, it will be better than saying nothing “the waiting is the hardest part” and the planning blight afflicting current pension pricing needs to be lifted.

There are two schools of thought about what the Minister will say. One school, characterised by the Aviva stalwarts is that the Minister will listen to the ABI’s call for a postponement of the implementation of the cap till the insurance industry has got over the capacity crunch looming this summer as thousands of medium sized companies enrol their staff into workplace pensions,

The second scenario, talked of by Legal & General and the master trusts (who by dint of having a clean back book can be more progressive, is that the Minister is backing  down from his “full frontal assault on charges”, cowed by the Department of Business and the Treasury who see any costs transferring from members to employers as a full frontal assault on the “growth agenda”.

Steve Webb has stated earlier this week that “nothing has changed” and thrown brickbats at  speculation.  Well Steve, you’ve got to speculate to accumulate and some of us have businesses to run. While you consider what to do, we are losing time and our clients plans are being held up. If Jo Cumbo’s article in the FT came as an unwelcome jolt to the DWP, so be it. We could still have been sitting on our backsides till mid-February had someone not asked the question.

So what do I expect to happen? By the time you’ve read this, Steve may have spoken, Jo may have tweeted and I’ll have made myself a hostage to fortune. So what I expect to happen is what I hope will happen with a high VAR that it won’t!

I sympathise with the insurers with back books (though it’s their own faults for paying commissions rather than improving their products). They have to clean their acts up and they have committed to doing so.  Giving them a charge cap to deal with now will simply get them to concentrate on the pricing of their book, they will not have the time and energy to concentrate on setting up their IGCs, dealing with At Retirement issues, portability, hidden investment costs, improving member engagement or developing the links with payroll to make AE happen (better).

So I support a delay in the implementation of the charge cap.

I don’t support kicking the charge cap into the long grass (eg another consultation or a “we will legislate when we get re-elected” stance). You either have a cap or you don’t.

I would support abandoning the charge altogether ; but only if the insurance industry were showing some inclination to clean their act up, get the IGCs up and running and take seriously the OFT report.

Since I don’t see any of those things , I think they need to have their wings clipped and I would go for a cap of 0.75% (with comply or explain for worthy cases  to 1%.

But the detail is with the DWP and their impact assessment. The most important thing is we get better at doing workplace pensions and in as much as the charge focuses the mind on the consumer and not on profit maximization, I support it. But I would rather have better pensions without intervention; so “cap or no cap”, don’t expect what Steve Webb says today to be the end of the story!

 

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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