Mr Webb said a cap set at 0.75 per cent, the strictest option proposed in last October’s industry consultation, would “transfer around £200m from the profits of the pensions industry to the pockets of savers”.
Mr Webb’s comments came as the department for work and pensions (DWP) published its latest response to the consultation. This revealed that “member-borne deductions” will replace the AMC from April 2015.
In the 120-page document, the DWP rejected concerns that the charge cap will make it difficult for providers to cater to smaller employers, stating that many do not intend to target this market anyway and that the government has a “responsibility” to protect all scheme members.
Earlier this year, Mr Webb said the introduction of the charge cap – which had originally been scheduled for April 2014 – would be delayed by a year, amid concerns about unintended consequences for savers.
However, in the DWP document, Mr Webb said a cap was fair, especially for “those in the default funds of schemes used for automatic enrolment”.
The document also said the government will review a cap reduction in 2017, and consider whether the cap should include transaction costs.
The DWP has said a lower cap of 0.5 per cent could pose “unacceptable market disruption”, while the inclusion of transaction costs would hamper trading activity and be “disadvantageous” to schemes and members.
However, the DWP promised to monitor schemes to ensure member-borne charges are not erroneously classified as transaction costs.
Malcolm Small, senior financial policy adviser at the Institute of Directors, said: “The pensions market is delivering scheme charges well below this level in many cases, but it must be recognised that smaller schemes cost more to support and operate.”
Adviser view
Craig Palfrey, director of Cardiff-based Penguin Wealth, said: “This is a double-edged sword, denying workers the freedom to invest as they see fit in funds that could potentially yield the best results. Plenty of schemes offer a lower charge rate than 0.75 per cent, but the performance is often inferior to funds whose charges are greater. As well as lower charges in default funds signalling below-par performance, it means that the investor ends up with less money in their pot.”
