Defined contribution pension reform – DWP confirms charge-capping measures and quality standardsPrint publication
On March 27, the Department for Work and Pensions (DWP) outlined in its “Command Paper: Better workplace pensions: Further measures for savers” new quality standards and charge-capping measures. This will affect those involved with defined contribution (DC) contract and trust-based schemes. The consultation closed on 15 May 2014.
The key proposals include the following changes for DC pension schemes:
- For those running DC schemes from April 2015, there will be a minimum quality standard. The purpose of this is to ensure the people running and implementing such schemes take into account the quality of the scheme and prioritise members’ interests. For trust-based DC schemes, the requirements will be implemented under regulations which will be enforced by the Pensions Regulator. With regard to contract-based schemes, the Financial Conduct Authority (FCA) will oversee the implementation and enforcement of quality standards.
- From April 2015, in order to increase and improve transparency of contract-based DC schemes, providers will have to put in place Independent Governance Committees (IGCs). Their purpose will be to evaluate the value for money that members are getting as well as ensuring compliance with quality standards. The IGCs will be given powers to escalate any concerns to employers, members and the FCA. For trust-based DC schemes, trustees will have to also consider minimum quality standards and report if necessary to the Pensions Regulator.
- A charge cap of 0.75% will be introduced from April 2015 for managed funds. However, this will only apply for the default funds of DC qualifying auto-enrolment schemes. Please note the cap will exclude transaction costs. Qualifying DC auto-enrolment schemes will also not be able to levy consultancy charges against members of such schemes. The cap and charges will be considered again in 2017. There will also be a requirement of disclosure of all pension costs and mandatory charges by the trustees and IGCs. This will be made available to members, employers and regulators.
- The DWP is also looking to explore improving standards of schemes by non legislative means including accreditation or quality marks for well administered DC schemes.
The changes mentioned above will be implemented under the Pensions Act 2014, respective secondary legislation as well as new FCA regulations.