Pension charge cap reforms brought forward

During the mini-Budget, the former Chancellor, Kwasi Kwarteng, plans to “accelerate” reforms to the pensions charge cap.

This move, he said, would help to “unlock pension investments” into UK assets and high-growth businesses.

Under these new pension measures, the Government has brought forward plans that exclude performance fees from the 0.75 per cent charge cap on defined contribution (DC) default arrangements.

The pensions charge cap

The cap is set by the Government and limits how much savers into defined-contribution (DC) pensions can be charged in their scheme’s default funds.

This is typically the fund that most workers’ contributions are invested in if they choose not to invest in an alternative.

This cap has previously limited where pension funds invest, preventing them from putting workers’ savings in peril by investing in higher-risk investments, such as infrastructure and renewables projects.

Although these investments can potentially offer higher returns, they also tend to charge higher fees.

The current cost of workplace pension schemes typically is much cheaper than the 0.75 per cent cap, but many pension providers say that the limit has stopped private investment by workplace pension funds in riskier projects that could deliver more to savers.

What does the change to the pension cap mean for you?

In theory, this change should allow pension fund managers to move pension savings into higher-risk investments, with higher costs.

However, many experts have said that, in reality, most schemes will only invest where it is the right thing for members, with many unwilling to place additional risks and costs on workers and other pension holders.

Link: Growth Plan 2022