29th November 2013

Aegon response to the DWP consultation

Aegon UK has now submitted its official response to the Department for Work & Pensions (DWP) consultation ‘Better workplace pensions : a consultation on charging‘.

In its response Aegon calls for prioritisation and perspective in the pension charges debate. It also warns that imposing new conditions on employers just as auto-enrolment reaches its peak could cause chaos and lasting loss of consumer confidence.

Aegon has highlighted the following as the key points for the DWP to consider:

• The successful implementation of automatic enrolment should be the DWP, and industry, over-riding priority. The interventions proposed place this at considerable risk.
• While making sure individuals receive value for money is important, this is not simply a function of securing the lowest possible charges. The level of charges is no more significant in terms of delivering good member outcomes than the level of contributions, starting early, continuing to contribute and obtaining good investment performance.
• Introducing a price cap for workplace pensions is not necessary and doing so could lead to unintended consequences. Setting it at 1%, and initially for future auto-enrolees only, would limit the risks.
• A comprehensive audit of existing schemes and their charges, as the industry committed to the Office of Fair Trading (OFT) to carry out, is essential before adjustments can safely be made to the terms of existing members. A three year transition from employer staging dates will avoid capacity issues threatening auto-enrolment success.
• Advisers play a positive role in workplace pensions and any further changes to the way employers can remunerate them should be phased in over not less than three years to avoid further risks to auto-enrolment.

Angela Seymour Jackson, Managing Director of Workplace Solutions, said: “Aegon is geared up to make sure our employer clients of all sizes, and their advisers, make auto-enrolment a success. There’s a risk too much focus on driving down charges will mean many good existing schemes with high employer contributions and other valuable features fail a ‘charge test’. This would force employers to make emergency changes or worse still start from scratch, which could result in members receiving lower employer contributions.

“We’re urging the DWP to be very clear on its priorities and believe making auto-enrolment a success should be number one.

“The debate on charges also needs to be kept in perspective. Many other aspects of pensions are just as important in terms of meeting customer retirement aspirations. These include size of employer contributions, starting early and securing competitive investment returns.

“Workplace pensions are long-term commitments and they need careful planning. If the rules change, particularly for schemes already in place, both employers and the industry need a proper transitional period to respond to make sure members don’t end up suffering through the loss of valuable benefits. But even for schemes about to commence, we’ll need time to adjust for any new DWP requirements.”

Aegon also highlights that the cost of offering a pension scheme to a small employer with high employee turnover is much greater per member than for a large employer with a stable workforce.

On the level of the price cap, Angela Seymour Jackson, added: “Setting the level of the cap too low will severely restrict choices for smaller employers unless they are prepared to pay substantial additional fees. This is not about industry profit – it’s about choice for the employer enabling good member outcomes.”

Pensions