Workplace pension charge cap will remain at 0.75% following review

The government has also confirmed that the cap will not be extended to cover transaction costs, noting that a more in-depth review of pension scheme charges and automatic enrolment would follow in 2020.

In a written statement to parliament, pensions minister Guy Opperman said that the cap was "working broadly as intended, helping to drive down member-borne costs, whilst allowing flexibility to allow asset diversity or tailored services for members and employers".

"The government remains committed to ensuring [automatic enrolment] members are protected from unreasonable and unfair charges, and recognises that there is on-going concern amongst consumers," he said.

"We will actively monitor the situation, by reviewing the information which trustees of DC [defined contribution] schemes will be required to publish from April 2018, and which providers will publish in due course, to monitor whether the downward trend in charges is continuing," he said.

A cap on member-borne management charges on default funds in DC schemes used for automatic enrolment was introduced in April 2015, set at 0.75% of funds under management. Transaction costs resulting from the trading necessary to invest the assets paid into the pension scheme are not capped. However, trustees and independent governance committees (IGCs) are required to report on these costs as part of their annual scheme value for money assessments.

In his statement, Opperman said that there remained "a lack of transparency" around transaction costs, which was hindering the ability of trustees and IGCs to perform the value for money assessment. The new standardised transaction costs reporting proposals, developed by the Financial Conduct Authority (FCA) and Department for Work and Pensions (DWP), would help with this, which in turn would allow the government to come to a decision about whether a cap on transaction costs was appropriate.

The government found, during its review, that some small schemes were less able to take advantage of the most competitive market rates. Opperman noted that proposals aimed at simplifying the scheme consolidation process would "allow schemes who cannot secure value for money in the long term to exit the market and secure a better deal for their members elsewhere".

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that government's findings on charges, which come as part of its wider review of pensions automatic enrolment, had been expected.

"This was always the likely outcome for the charge cap," he said. "It makes sense that transaction costs remain carved-out given that a wide range of measures are now addressing transaction costs in any case. There's also a logic to leaving the 0.75% cap in place, for the time being."

He added that, by the time of the next review in 2020, "we could have a much changed workplace and retirement market, and a clearer picture of what value for money – not just cost – looks like".

Opperman said that the government expected there to be "a much clearer case for change in 2020" after the next review.