I spent a large chunk of the weekend researching last week’s Financial Times story regarding the Auto-Enrolment (AE) pension scheme charges cap. For those that missed this, the article suggested that a delay of “up to a year” was likely before the cap* is formally announced.
Have I made much concrete progress? Well no, but it has helped shape my thoughts on the current position for all concerned. So, if the report is credible, where this will leave employers seeking to comply with AE duties in the near future (and indeed many that already have gone through this process)?
I am happy to admit that I was openly campaigning for a delay to the implementation of a charges cap. This was on the basis that the actual financial cost to savers in pensions income terms of a delay (say 3 years) was nominal (see the link for details). http://goo.gl/CNgD7B With such a low level of potential financial loss it’s difficult to justify adding further complexity to an already confused AE landscape right now.
Yet although a delay in implementation of a charges cap was, and is, important, I was also strident in my calls that the level of the proposed charges cap should be announced now, with a date set in legislation (say October 2017) by which all AE schemes must comply with that edict. My rationale for this was any, or all, of the following:
- Those employers who have already staged, would be able to assess if their scheme would still be suitable for AE come 2017, and plan a timetable of action to resolve issues in a timely and professional manner
- Those employers close to staging date will similarly be able to make an informed decision around the scheme(s) they have selected for AE. If change were needed, then the employer could restart the selection process for an AE scheme armed with the knowledge of the charging limitations that will apply from 2017, or opt to press-on and use their currently selected scheme in the short-term – making the required changes in an orderly manner before 2017.
- Employers who are only now starting to look at pension scheme options could focus their search for a suitable pension vehicle based only on those schemes where charges are at or below the new cap.
So I was calling for a short delay now, but with certainty of future maximum charges and implementation date. This outcome would present the best opportunities for employers to comply, plan to comply, and control costs, whilst still safeguarding the interests of savers.
Yet if the FT report is correct, we are instead facing a much worse situation.
A charges cap will be announced – we just don’t know what level it will be, when the cap will apply from, or indeed what form it may take.
And right now thousands of employers are closing on their AE staging date. These employers may have little choice but to make a “best guess” scheme selection based on the proposals in the original consultation, and the snippets of info reported in the media. Not ideal, and will doubtless result in many making a decision that subsequently needs to be revisited only a few months down the road.
Or to put it another way, and in my humble view, this may be the worst possible outcome for employers at this time.
Will keep you posted as this develops, and let’s hope some clarity arrives sooner rather than later.
*and presumably some other major issues that were also included in the Consultation document