A couple of weeks ago, we predicted that costs would rise for employers, after the Government introduced a charge cap on pensions used for Automatic Enrolment.
This week we can report our prediction has come true.
Earlier last month, Pensions Minister Steve Webb, announced that the maximum charge on a default pension fund, used for Automatic Enrolment purposes, would be capped at 0.75% from April 2015.
This week Standard Life, a leading provider of Automatic Enrolment pensions, has announced that employers whose schemes have a charge on the default fund higher than the 0.75% cap, will be charged £1,200 per year.
The new “scheme management charge” will hit smaller pension schemes with low average annual contributions hardest.
Responding to the change, Standard Life’s Barry O’Dwyer said: “If the terms of your scheme are currently higher than 0.75%, Standard Life will reduce the member charge to be no more than 0.75 per cent in time for April 2015.”
O’Dwyer continued: “For larger schemes, meaning schemes with 50 or more employees and at least £150pm average contributions (after allowing for minimum step ups in 2018) Standard Life will bear the cost of the reduction in charge.
“For smaller schemes, meaning all other schemes that meet our standard criteria, a scheme management fee will be introduced at the same time as the reduction in member charge.
“If a scheme management fee applies, it will be £100 per month. We will notify you at least three months in advance of its commencement and we won’t require any further action from you.” (Source: Money Marketing)
Standard Life unlikely to be alone
Experts are predicting that Standard Life is unlikely to be the only provider of Automatic Enrolment pensions to impose such a charge, as providers look to recoup revenue lost after the introduction of the price cap.
Aegon has said that such a charge is “one way of addressing” the issues created by the charge cap.
In the meantime, Scottish Widows are set to apply the 0.75% charge cap a full 12 months before they are required to do so.
It is clear, that as smaller employers reach their Staging Date, some traditional pension providers such as Standard Life, will look to recoup income lost as a result of the charge cap. Time will tell whether other pension providers directly hit employers as Standard Life have done.
We’re here to help
If you have an existing pension you plan to use for Automatic Enrolment now is the perfect time to review your options:
- Can the scheme be used for Automatic Enrolment?
- Will the scheme meet the 0.75% charge cap on the default fund?
- Will you, as the employer, be hit with an additional cost?
- What are your options?
We know many employers are concerned about their Automatic Enrolment obligations and we’re here to help answer all these questions and more.
We’ve developed a four stage process to ensure your business is compliant by your staging date and sticks to the rules in the months and years to come.
- Would like to know your staging date
- Have a question about Automatic Enrolment
- Would like to know how you can comply with the new rules
Then get in touch today, to put it bluntly, this problem isn’t going away and your staging date is only getting closer.
We’re here to help, call us on 0115 933 8433 or email firstname.lastname@example.org