Standard Note: Last updated: Author: Section SN 6209 6 September 2012 Djuna Thurley Business and Transport Section
Pension scheme charges can be for good quality financial advice and other services that may be a beneficial product feature. However, even quite small differences in charges can make a significant difference to the size of an individual’s pension pot at retirement. The issue has taken on added importance with the impending introduction of workplace pension reforms from October 2012. An important part of these reforms is the introduction of the National Employment Savings Trust (NEST), a low-cost national pension savings scheme. However, employers also have the option of using an existing scheme, provided it is a “qualifying scheme” which meets certain minimum requirements and standards. Qualifying schemes are required to a default option, so that individuals are not required to make an investment choice. DWP guidance says care should be taken to ensure charges are not excessive and are clearly disclosed. The Government has the power to establish a charge cap for qualifying schemes, should this prove necessary. The industry is working on measures to improve transparency. This note looks at the different charges that apply, the impact they can, the regulatory framework and measures considered by the Government to mitigate the impact of charges on pension savings.
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