The 0.75% Pension Charge Cap for Workplace Pensions Explained

When auto-enrolment was introduced in 2012, it brought millions of workers into workplace pensions for the first time. With that came a risk: if charges on those pensions were too high, a significant portion of retirement savings would be eroded before the member ever accessed them. The government responded with a charge cap on default auto-enrolment pension funds, limiting annual management charges to 0.75% of funds under management per year.

This guide explains what the cap covers, how the major workplace pension providers compare on charges, and why the difference between a 0.5% and 0.75% charge over a working lifetime is far more significant than it appears.

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What the Charge Cap Covers

The charge cap — formally the "default fund charge cap" — applies to the default investment arrangement in any qualifying workplace pension scheme used for auto-enrolment. It was introduced from 6 April 2015 under the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and sits at 0.75% of the fund value per year as an Annual Management Charge (AMC).

What falls within the cap:

• Fund management charges (the cost of managing the investments within the default fund)
• Administration charges (the cost of running member accounts, providing statements, and scheme governance)
• Platform charges (the underlying infrastructure cost where applicable)
• Charges expressed as a percentage of the fund — the total of these cannot exceed 0.75%

What the cap does not cover:

Transaction costs: The costs of buying and selling underlying investments within the fund (dealing costs, stamp duty, bid-offer spreads) are not included within the 0.75% cap. They are disclosed separately under the Occupational Pension Schemes (Administration, Investment, Charges and Governance) Regulations.

Performance fees: The question of whether performance fees are within the cap has been contentious. Following consultation in 2021, the government decided to exclude well-structured performance fees from the cap, to enable pension schemes to invest in illiquid assets (infrastructure, private equity) that typically carry performance fees. This remains controversial — critics argue it creates a loophole for high-cost active management.

Non-default funds: The cap applies only to the default fund. Members who actively choose non-default funds (e.g., ethical funds, higher-risk equity funds) are not protected by the cap in relation to those funds.

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Why the Default Fund Matters

The vast majority of auto-enrolment pension members never make an active investment choice — they remain in the default fund throughout their career. Studies consistently show that over 90% of auto-enrolees do not change their investment options.

This makes the design and charges of the default fund the most consequential pension investment decision for most employees — even though they make no active decision about it. The charge cap ensures that this default experience is not exploited by high-cost providers.

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Major Workplace Pension Providers: Charge Comparison

The major auto-enrolment pension providers compete primarily on charges for the default fund. As of 2025/26:

NEST (National Employment Savings Trust):

• The government-backed provider of last resort for employers without an existing pension arrangement.
• Fund charge: 0.3% per year on the fund value (well below the cap).
• Additional charge: 1.8% on each contribution (this is a contribution charge, not a fund charge — it is not counted within the 0.75% AMC cap framework, though it is disclosed).
• The contribution charge reduces over time as the 1.8% of small early contributions is a diminishing proportion of the growing fund.
• Net effect: For members with small balances and short tenures, NEST's combined charges can be higher than alternatives; for long-term, large-fund members, the 0.3% AMC is very competitive.

NOW: Pensions:

• Flat fee structure: Approximately £18/year employer administration fee plus £1.50/month per member charge, with a fund charge of around 0.3% per year.
• The flat fee structure means NOW: Pensions is relatively more expensive for employees with small pots (the £18/year is a larger proportion of a £1,000 fund than a £100,000 fund) but competitive for larger funds.

The People's Pension:

• Fund charge: approximately 0.5% per year, all-in.
• No contribution charge.
• Straightforward pricing — well below the cap, competitive for most employer sizes.

Smart Pension:

• Fund charge: approximately 0.3-0.5% depending on employer size and negotiated terms.
• Claims to be one of the lowest-cost providers for mid-size employers.

Standard Life, Aviva, Legal & General, Scottish Widows:

• Major insured providers typically charge 0.3-0.5% for larger employers with negotiated rates, but standard individual rates may reach 0.5-0.6%.
• For smaller employers without negotiated rates, charges may be at or near the 0.75% cap.

The above figures are illustrative and subject to change — employers and members should check current pricing directly with providers.

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Why Charge Differences Matter: The Compound Effect

The difference between a 0.5% annual charge and a 0.75% annual charge may seem trivial — just 0.25 percentage points. Over a 30-year working life, the effect is substantial.

Illustrative example:

Assume:

• Starting pension pot: £10,000
• No further contributions for simplicity
• Investment growth: 5% per year (gross, before charges)
• Scenario A: 0.5% annual charge — net growth 4.5%/year
• Scenario B: 0.75% annual charge — net growth 4.25%/year

After 30 years:

• Scenario A (0.5% charge): £10,000 × (1.045)^30 = approximately £37,453
• Scenario B (0.75% charge): £10,000 × (1.0425)^30 = approximately £34,666

The difference is approximately £2,787 on a £10,000 starting pot — roughly 7.5% of the final fund — from a charge difference of just 0.25% per year.

On a larger, growing pension pot, the compound effect is proportionally similar but the absolute difference is much larger. For a higher earner who retires with a £300,000 pension pot, the equivalent calculation could show a difference of £80,000 or more over 30 years.

This is why the charge cap matters, and why employers should not simply default to the most convenient provider without considering charges.

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What Employers Should Do

Employers choosing a workplace pension for auto-enrolment are required by law to use a qualifying scheme — which means the default fund must be within the charge cap. However, there is significant variation within the cap:

1. Compare providers — do not accept the first provider quoted. NEST, NOW, People's Pension, and Smart Pension are often competitive for smaller employers. Larger employers can negotiate with Standard Life, L&G, Aviva, and Scottish Widows for better rates.

2. Check total charges — look beyond the AMC. Contribution charges (NEST's 1.8%), flat fees, and transaction costs affect total member charges.

3. Review the default fund quality — charges are not the only consideration. The default fund's investment strategy, governance, and long-term performance record also matter. A cheap fund that consistently underperforms a slightly more expensive fund may cost members more over time.

4. Governance obligations — employers using defined contribution workplace pensions have governance obligations, including annual assessment of whether the default fund and charges remain appropriate.

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Members' Rights Regarding Charges

Pension scheme members have a right to:

• See the charges applied to their pension — under the Disclosure Regulations, providers must disclose all charges on member benefit statements and scheme websites.
• Compare charges across providers if they are considering switching.
• Complain to The Pensions Regulator or the Financial Ombudsman Service if charges appear to exceed the cap or have not been disclosed properly.

Members with workplace pensions above the auto-enrolment minimum can also request information about transaction costs, which must be published by scheme trustees under the implementation statement in the Chair's Statement.

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The Charge Cap and Default Lifecycle Strategies

Most auto-enrolment default funds use a lifecycle (lifestyling) strategy that automatically shifts the asset allocation from growth assets (equities) to capital-preservation assets (bonds, cash) as the member approaches retirement. The charge cap applies to the fund at all stages of the lifecycle.

Some lifestyle strategies involve complex fund-of-funds structures with multiple underlying charges. Where these are structured within the default arrangement, the total charge including all layers must remain within the 0.75% cap.

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Compliance Caveat

This guide is for general informational purposes. The 0.75% charge cap, the regulations that define it, and the charges applied by individual pension providers are all subject to change. The illustrative growth and charge calculations are not projections or forecasts — actual investment returns will vary and can be negative. Nothing in this guide constitutes financial advice. Employers choosing a workplace pension and members concerned about their pension charges should seek appropriate professional guidance. The value of pension savings can fall as well as rise.

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How Global Investments Can Help

For employers setting up or reviewing workplace pension arrangements, and for individuals wanting to understand whether their auto-enrolment pension is genuinely competitive, Global Investments can provide an objective assessment of the landscape.

We work with employer clients on pension scheme selection and governance, and with individual clients on reviewing workplace pension charges in the context of their broader pension strategy. Where a more cost-effective arrangement is available — or where consolidating workplace pensions into a SIPP would be advantageous — we can help you assess the options and connect you with regulated advisers. Contact us to discuss your needs.