The Pensions and Lifetime Savings Association is taking issue with the U.K. government's proposal to introduce a universal fee structure within defined contribution plans, saying it would not help participants choose better investment options.
In its response to a consultation by the U.K. government on permitted fees in DC plans, the PLSA said Monday that it would be better to focus on helping plan sponsors compare fees — rather than participants — to improve outcomes.
Current regulations permit three fee structures.
In default funds, plan sponsors and DC plan providers can charge a percentage fee of the account value at the end of each year that is capped at 0.75% of funds under management; combine a percentage charged on each new contribution made with an annual percentage of funds under management charge; or combine a monthly or annual flat fee with an annual percentage of funds under management charge.
Total combined fees in each of the three scenarios can not breach 0.75% of funds under management and administration in a default fund, but plan sponsors and providers can opt for the charging structure of their choice based on the size of their plans and the provider's strategy.
The government launched the consultation to determine if a single structure could improve choice for plan participants by helping them to compare charges.
However, the PLSA said that employers rather than employees select providers in the U.K. The PLSA also argued in its response that there is no evidence to show that having a single charging structure would improve comparison of costs and encourage people to make active decisions.
"The PLSA supports improved cost transparency and comparability, however we do not believe the proposals to move to a universal charging structure within default funds are an appropriate solution to the problem identified,'' said Joe Dabrowski, deputy director policy at PLSA, in an emailed comment. "This move would see a significant overhaul of the functioning of the market to simply improve disclosure," he added.
"Before taking decisions on these far-ranging and complex issues, we urge the government to undertake an in-depth evidence gathering exercise supported by careful and robust analysis," he added.