Following the DWP consultation outlining plans to cap workplace pension charges at 0.75% a year, PwC partner and life insurance leader Philippe Guijarro comments on the effect on insurers:
"The proposed 0.75% cap on charges on pension funds may create some significant challenges for insurers, particularly when combined with the Office of Fair Trading's (OFT) defined contribution workplace pension market study issued last month. Whilst a focus on amounts charged can be beneficial for customers (either as individuals or as part of a workplace scheme), they are not the only measure of value. As the OFT concluded, it's important also to consider qualitative aspects such as the design and execution of investment management, the quality of customer service and the overall governance processes in place.
"The assessment of value is not easy, and this is recognised in the recommendation by the OFT that providers should establish an Independent Governance Committee, made up of independent members with the necessary expertise and resources, to consider all the key elements of value for money. As yet, there is no clear picture of how this will operate in practice, but this will inevitably increase compliance costs, which continue to be a concern for the industry.
"Providers will also need to consider the implication of a cap on fees on their existing funds, especially given the OFT's proposals to ban the use of active member discounts.
"An excessive focus on fees could create significant challenges for new entrants and inhibit competition in the market place. Whilst established providers may be able to benefit from economies of scale, this might not be possible for new entrants; in simple terms this could be detrimental to the quality of investment management with a default to tracker or passively managed funds a real possibility."
|
