Better Workplace Pensions - The Government's plans to limit charges on default funds
The Government published its proposals to work with regulators, the pensions industry and employers to ensure that all workplace pension schemes are of high quality, offer value for money and are capable of delivering good outcomes for customers.
There are a number of requirements, potentially the most significant being the introduction of a charge cap and change to default funds.
From April 2015, a maximum charge of 0.75% of funds under management, excluding transaction costs, will apply to the default (or most popular) fund in all qualifying schemes. This cap applies to active and deferred members and will cover all member borne charges paid to a provider or 3rd party such as advisor charges. It applies equally to historical default funds as well as the current default fund.
This charge will be called the Member Borne Deduction (MBD) and will replace the term Annual Management Charge (AMC) for disclosure purposes. A scheme may be able to avoid the cap if it is deemed defined benefit as a result of the changes to the definition of money purchase in Pensions Act 2011.