Legal & General Assurance Society CEO John Pollock has reiterated his firm’s call for an auto-enrolment pension scheme charge cap of 0.5 per cent, arguing that a higher cap will not be effective in reducing costs for savers in legacy schemes.
Mr Pollock argued the proposed cap will be ineffective in driving down costs, and not tackle the big problem of legacy pension schemes where savers could be getting a poor deal.
He said: “A pension charge cap at 0.75 per cent is a poor idea by the government. Not only will it potentially cost legacy scheme pension savers £4.3bn in lost savings, it will also be ineffective in driving down pension charges for millions of savers.
“The Office of Fair Trading state typical new auto enrollment schemes actually charge 0.51 per cent. Having a cap at a much higher figure will have no impact on new pension schemes, and will result in legacy savers being treated unfairly compared to new savers.
“Legal & General is in favour of having a meaningful cap at 0.5 per cent, not only for new auto enrolment schemes, but for legacy pension schemes as well. It is here in the legacy world that savers maybe getting a poor deal, with fees at much higher levels.
“Competition is driving down the cost for new auto enrolment schemes, but is having no real impact on legacy schemes because employers have historically rarely switched suppliers.”
Mr Pollock’s comments follow recent debates over the cap and particularly how it will apply to schemes such as government-backed Nest, which has a low 0.3 per cent AMC but levies an initial charge that mean its fees are significantly above 1 per cent until an individual has been saving for at least five years.
During a recent live Q&A with FTAdviser sister title the Financial Times, readers voted in favour of a charge cap at the governments proposed level of 0.75 per cent. Four in 10 respondents stated this would be optimum, compared to 27 per cent who said a cap of either 0.5 per cent or 1 per cent would be perferable.