Medium-sized firms that are due to start auto-enrolment in April 2014 should speak to providers now about the pension charge cap, Towers Watson has said.

The consultancy firm said that employers with staging dates in April or May 2014 have been told that their schemes will be subject to the cap straight away..

However the level of the cap and what it includes is not expected to become clear until early in the new year, and may employers with between 90 and 249 staff will be "feeling their way in the dark", Towers Watson senior consultant Will Aitken said.

The Department for Work and Pensions' (DWP) consultation paper includes options for capping charges at 0.75% of funds under management and for a 1% cap, but does not completely rule out setting the cap at a different level.

The paper also asks what should be within the scope of the cap and discusses banning schemes with 'active member discounts' (lower charges for current employees than for ex-employees), or which pay commission to advisers, from being used for automatic enrolment.

Aitken said: "Employers will be held responsible if they do not have a compliant scheme, so they are going to need to play it safe.

"If an employer was planning to enrol employers into an existing scheme with a 0.8% charge, crossing its fingers and hoping that the Government allows this will leave them with a race against the clock if the decision goes the other way.

"Nor can employers take too much comfort from a headline charge that is slightly below 0.75% until we know what counts towards the charges that are going to be capped."

He added that where charges look borderline or include active member discounts, firms should talk to their providers now and understand what would happen if the arrangements that have agreed fall foul of the new rules.

"Pension charges is an issue that has been simmering for a long time. Those firms standing in the worst possible place when it boiled over are going to have to act quickly to clear up the mess it has made of their auto-enrolment plans," Aitken said.

First published 25.11.2013

monique_simpson@wilmington.co.uk