A new consultation has proposed capping charges for drawdown products, stating that existing options are very expensive and can suffer from poor investment strategy and governance.
A Labour-backed review of retirement income has questioned whether institutional standards - in terms of charges, governance and design - should be brought to the retail space.
It asked for responses to what a typical total expense ratio for a default drawdown product provided by a large-scale master trust could be, and how this would compare with individual drawdown products sold in the retail market.
In March this year the Department for Work and Pensions revealed that workplace pensions would be subject to a management charging cap of 0.75 per cent from April 2015.
The government had initially proposed capping charges at either 0.75 per cent or 1 per cent - or applying a comply or explain middle ground between the two - to be introduced from April of this year.
The paper asked whether a cap on drawdown should be the same as for the accumulation phase or whether it should be higher. It also queried whether drawdown should be subject to higher quality controls and consumer protection in relation to risks and costs.
In response to the paper, pensions minister Steve Webb said: “Value for money for savers has been at the heart of this government’s radical pension reforms, including a ban on rip-off charges and the imposition of a 0.75 per cent charge cap on workplace pensions people are automatically enrolled into.
“Under the ‘guidance guarantee’, everyone will be entitled to free and impartial guidance before they access their pension savings. And, in addition, in the new year the FCA will be publishing new guidelines for companies selling pension related financial products under the budget changes.”
The consultation follow on from proposals by the Financial Conduct Authority in October which said that while transaction costs should be exempt from the charge cap for default funds, it will consider how transaction costs should be disclosed.
The closing date for submissions to the paper is 20 February 2015.
Additional reporting by Donia O’Loughlin
ruth.gillbe@ft.com
