Carmaker Jaguar Land Rover has cut its defined contribution scheme charges by 10 per cent as the imminent fees cap pushes down costs for savers across trust and contract-based schemes.
The Department for Work and Pensions last week published draft regulations on the introduction of a 75 basis point charge cap for default funds used for auto-enrolment, which has led providers to review their products in light of the cap and has empowered schemes looking to control costs for savers.
In its latest newsletter to members, the scheme said: “JLR has negotiated a 10 per cent reduction in the investment management and administration charges for your individual pension account. We will continue to look for opportunities to improve value for money.”
Zurich, which provides administration services for the scheme, is understood to be reviewing its default fund options to make sure they comply with the cap ahead of April.
Andrew Cheseldine, partner at consultancy LCP, said many in the industry expect the charge cap to come down further following implementation, causing schemes to try to compress costs even more.
“The charge cap is concentrating minds,” he said. “Some trustees I work with are aiming for 60bp. There may be pressure on the charge cap to come down further.”
But he added: “I don’t think it will come down hugely, partly because of all the extra things trustees are being asked to do.”
The charge cap is concentrating minds. Some trustees I work with are aiming for 60bp
Andy Cheseldine, LCP
Pensions minister Steve Webb estimated the cap could save individual members £100,000 over their lifetime, and lead to £200m in savings over the next decade – although some consultants have criticised this projection as “extreme”.
The figures are based on an annual management charge of 1.5 per cent, but a 2013 study from the Office of Fair Trading showed the majority of contract and trust-based bundled schemes were paying 1 per cent or less.
The downward pressure on charges is not seen as inevitable. Girish Menezes, head of pensions administration at Buck Consultants, said charges could rise in the near future.
“A year or two ago there was a lot of focus [on charges] and there was a dash to the bottom,” he said. “Because of the new DC flexibilities… the focus is more on high-quality services and [an] expanded range of services.”
He added: “People are looking at good quality of service and the flexibility of the offering.”
James Colegrave, senior consultant at Towers Watson, said the cap would have a limited effect on members of larger DC schemes, whose charges tend to come in below the limit. “The average person will not be any better off in our case,” he said.
Some schemes are seeking to drive down costs by merging. But Cheseldine said some could save by dividing up their membership, such as those with a mixture of workers on variable weekly earnings and fixed monthly earnings.
“Differentiating might reduce costs for both sets of groups,” he said. “Be creative about how you cut them to get the best deal.”
