Webb threatens pension charges cap

Pension providers will face action from the government on excessive pensions charges if the industry does not bring them down, the pensions minister has said.

Speaking at the work and pensions select committee on 25 January, Steve Webb, Minister of State for Pensions, said the industry has been “variable at best” on charges and transparency and that a cap will be introduced if this is not remedied.

“The industry should be in no doubt: if they don’t get their act together we will cap,” he said.

Webb pointed out that apparently small differences in charges can make a big impact on pensions, as shown in the Money Management pensions charges survey, and said that the Department for Work and Pensions (DWP) would be keeping watch on the issue.

“We absolutely have to watch what is going on,” he said. “A lot of charges are not inherently evil; what is inherently evil is covering up those charges.”

Webb said that any cap would have to be considered carefully since providers might seek to circumvent it by adding charges in areas other than the annual management charge (AMC).

He said, however, that the government would be “supporting but not owning” the drive on transparency and that the industry must sort it out. But if this did not happen, he said, action would be taken.

“If the industry comes up with a set of guidelines on transparency, people adopt them and it is still not working, transparency might not be enough,” he said.

Webb said that, with the impending auto enrolment implementation, it is important that default funds must be good value for money since many people will use them rather than making active investment choices.

He added, however, that people must also be free to choose a more expensive option if they believe there is added value in doing so.

“If they know what they’re doing, it is an informed choice, they need to be able to do that,” he said.

Webb claimed that charges are already coming down because of competition but that he expects charges for standard funds to be lower.

“We expect to see some of the high charges for ‘vanilla’ funds come down,” he said. “We think that costs will be substantially lower than they have been for some time.”