Workplace Savings and Benefits Magazine are doing rather well out of the Jelf Employee Benefits blog this week, as this is the second time in two days that I have linked to a story on their website. Today’s missive can be seen via the following link: http://goo.gl/CmAK6m

As you can see, it’s about Which? magazine calling for a 0.5% charging cap for Auto-Enrolment (AE) schemes. This follows the recent papers from The Office of Fair Trading (OFT) and Department of Work and Pensions (DWP) that we have covered on this blog very recently.

So why am I posting on this issue again? Well it’s a simple point, but still really important. If the legislators and pressure groups don’t stop forcing more and more change (and therefore more and more short-term complexity) on employers who are seeking to comply with Auto-Enrolment legislation (a massive and unique exercise for both employers and the pensions industry), then it’s likely that huge numbers of employers will fail to adequately comply with the new requirements in 2014.

And that, in turn, could lead to many of the intended target market (i.e. first time pension savers) becoming disillusioned, or worse disenfranchised, with the pension savings process at the first hurdle. Not clever for the UK.

I fail to see why, in the last few weeks, we have moved from Auto-Enrolment schemes being free from any charging cap, to one where Which? are able to propose a charge cap of 0.5% (a limitation which would also see NEST listed as a non-compliant AE scheme).

This is just not the time to be playing with the framework of Auto-Enrolment legislation, and any change of this magnitude should have been dealt with before AE commenced (October 2012), or after the initial exercise is completed (2018).

To change this key point now is to encourage mistakes and non-compliance. It will also mean that many employers who have already enrolled into schemes that were deemed acceptable earlier this year, may now have to take on another round of administration, communications, and costs to alter their scheme structure to comply with the new edict. This in turn has the potential to worsen both employee relations and engagement levels. A bit of an own-goal for the UK economy all round really.

Now is the time for The Legislators to take a deep breath, and slow the pace of change. In the current climate it will be a bold move for Government departments to recommend such a stance, but it might well be best for all concerned.

To be clear, I’m not against a charges cap for AE schemes. Indeed it’s always seemed odd to me that this was not part of the legislation. But altering this key criterion now will just create chaos for all concerned.

It’s also worth mentioning that under the “mono-charged” pension structures which are prevalent in the UK market today, the vast majority of the charges are “back-end loaded”. Which in lay-terms means that actual charge deductions are generally very low in the early years, and build as the fund value itself gets bigger. Therefore delaying the introduction of a cap for most mono-charged AE schemes is unlikely to make much material difference to any resultant pensions in the short-term. It follows that the need to enact these changes overnight may not be as evident as recent reports would suggest.

So aside from a clear edict that AE schemes charging in excess of the original Stakeholder Charge cap (1%) should not be used, it’s questionable whether a new charging cap should be rushed through with unseemly haste at this stage. It is of course important that legislative plans are in place to enforce lower charges once AE compliance is a given, but for the meantime a period of calm would be rather helpful.

Legislators: Please note.

Best regards

Steve