The Government has confirmed that any cap on charges in default funds used for automatic enrolment will not be introduced before April 2015.
Nicola Prince, Director of Employee Benefits at Beckett Financial Services, commented: “We are pleased the Government has delayed the charge cap because it gives those affected more time to plan. They couldn’t encourage employers to allow twelve months to prepare for auto enrolment and then bring in a change like this within a three month timescale!”
The Pensions Minister, Steve Webb, announced the delay in a Written Ministerial Statement on 23rd January.
More Important Areas Of Concern
“Clearly, fund charges do have an impact on pension funds,” said Prince. “But it is important that employees don’t get put off by this debate as the areas that have a far bigger impact are: starting pension savings early enough, paying enough money in, asset allocation and fund choice.”
“Even if you manage to get that right, employees need to ‘shop around’ at the point they convert their pension savings into an income.”
Too Much Choice Might Lead To Inertia
“There is a vast choice of income options at retirement – and that can lead to inertia,” said Prince. “Choosing the right annuity can have an impact on income that ranges from 20% to over 40% in some cases.”
Prince continued: “You can have the lowest pension fund annual management charge throughout the life of your pension savings but if you don’t make the right choice when you convert to an income it can cost you dearly.”
ABI Evaluation Of Code Of Conduct On Retirement Choices
The Government is awaiting the outcome of an evaluation carried out by the ABI (Association of British Insurers), and due to be published in March 2014. The evaluation will help the Government decide if further action is needed to protect individuals and help them secure better income at retirement.
The industry has also set up an Open Market Option Review Group and so the issue of pension choices and annuities options is likely to remain a hot topic during 2014.
For help with deciding on the right annuity or planning for retirement, contact Beckett Financial Services on 01284 754500.