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Auto-enrolment fees cap delayed

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Plans to cap management fees charged by pension providers have been delayed, according to a pensions expert.

First Actuarial director Henry Tapper confirmed reports in the press that suggested the Government planned to delay the cap until April 2015.

He told HR magazine two separate industry sources, which could not be named, suggested an announcement on the change to be made this week or in early February.

One of the sources believed the Government plans to scrap the cap all together.

The proposals would have seen management fees charged by pension providers capped between 0.75% and 1% for those automatically enrolled into a pension under its auto-enrolment scheme.

The Government intended it to protect millions of workers enrolled into company pensions from paying high fees.

However, Tapper suggested the Government feared fees would transfer to employers, putting its business growth plans at risk.

“One theory is that the charge cap is being kicked into the long grass by the Government, which is worried that by depressing charges on individuals, the charges will simply be transferred to employers,” he said.

“The impact of that will be that employers will not be able to invest in their businesses in the same degree and the Government’s growth agenda will be in peril.

“The contrary view is that the Government is still on course for a charges cap, but it’s just decided to delay things so that insurance companies can meet the capacity crunch, which is happening from April 2014 onwards.

“Either way, the charge cap will not bite in law till April 2015, though it is unlikely that any company establishing a scheme between now and then will want to do so in a way that prejudices its qualifying status then.”

The pensions industry has already enrolled more than 2.5 million people into a pension since auto-enrolment began in October 2012.

The industry needs to handle a further 6.5 million enrolments in 2014.

Capacity crunch

Prior to news of the cap delay, PwC chief actuary Peter McDonald warned of a “capacity crunch” that would be caused by the cap.

“In the first two months of 2014 alone, 40% more employers are due to stage (5,300) than have already staged since auto-enrolment began last year (3,670),” he said. “In the second quarter, over 30,000 more employers are due to stage, dwarfing the number of employers which have staged to date.

“This comes at the same time as the charge cap and bans will take effect, meaning thousands of employers will potentially need to rebroke their pension schemes. This raises the real risk of a capacity crunch in the pensions market, with some providers unable to take on any new members.

"Employers are going to have to be smart about their auto-enrolment solutions, and potentially plan for and react quickly to contingencies if original plans don't work out."

According to the Financial Times, a Government spokesman said a consultation on workplace pensions charges needed further review.

“This is an important and complex consultation which requires our proper consideration to ensure we get it right, and we will confirm a publication date in due course,” he said.