I refer to my earlier post today around many of the ‘uncertainties’ around auto-enrolment. That post can be viewed here: https://www.jelfgroup.com/blog/2011/11/auto-enrolment-a-walk-in-the-fog/

One area that has become, very marginally, clearer as a result of The Pensions Act 2011 is around the charges that can be levied against Certified Pension Schemes. For the uninitiated, a Certified scheme is a scheme that the employer can opt to use as an alternative to The National Employment Savings Trust (NEST), and must meet certain conditions to qualify.

Briefly (and much more simply than the likely provision), these conditions are:

The scheme must use auto-enrolment

and

The scheme must have a suitable default investment fund

and

The contributions to the scheme must be at least as good as those that would otherwise be paid to NEST/ required by legislation (this is a big subject, and one for another post really)

BUT, up until now there has never been any requirement for a Certified Scheme to conform to any particular charging model or cap. In my view this has always been an unusual oversight, and this now looks set to change.

Tucked away in the Pensions Act 2011 was this:

85.Section 10 extends the existing reserve power in the PA 2008 to establish a charge cap for qualifying pension schemes used to fulfill an employer’s duties under Part 1 of the PA 2008, so that it applies to charges made to deferred members as well as to charges made to active members. It also clarifies what charges are subject to the power.

What this means in practice is that a Certified scheme may have to conform to a charges cap of some form. But what is the likely level of this restriction?

Well, we just don’t know. I have spoken to the Department of Work and Pensions (DWP) and The Pensions Regulator (TPR), and in reality the above clause seems to be something of an ‘enabling’ rule, allowing such a cap to be set at a later date as required, presumably to stop abuses of the system.

The DWP confirmed that nothing further has yet been timetabled on this subject, so don’t expect an answer anytime soon. Nevertheless, this is a provision that employers should be aware of when selecting a Certified scheme, as I guess it’s quite possible that any eventual decision may be retrospective.

Hope this helps (a little).

Best regards

Steve