DWP Review: Default Fund Charge Cap and Standardised Cost Disclosure - Which? response

Summary

• Which? welcomes the Department for Work and Pensions’ (DWP) review of the default fund charge cap for auto-enrolment schemes and standardised cost disclosure. The fees and charges taken from a person’s pension savings when saving can have a significant impact on standards of living in retirement. An increase in annual fees from 0.5% to 1% of a person’s fund would mean the individual having to raise contributions by around 10% in order to achieve the same pension fund. So protecting savers from high costs and charges is crucially important.
• Individual members have little oversight of the scheme or the level of charges. Most are auto-enrolled onto a default selected by their employer and rely on a board of trustees or independent governance committees to ensure the schemes are offering ‘value for money’. According to the Pensions Policy Institute, 91% of members of master trust schemes remain in the default investment. However, as highlighted by the Competition and Markets Authority’s recent market investigation, trustees and independent governance committees often lack the detailed information on fees and charges required to perform their role effectively by holding fund managers to account.
• The default fund charge cap that was introduced in 2015 has proven an effective protection against very high charges. Transparency of costs and charges has also increased somewhat in recent years. Which? believes that further reforms are required to ensure that savers are protected, including by resetting the level of the Default Fund Charge Cap, redesigning the Charge Cap, and by improving transparency and comparability of costs and charges by asset managers and pension schemes.