Tough new measures will ensure pension schemes deliver value for money for savers, pensions minister Steve Webb has announced.
Through the new changes, there will be a 0.75 per cent cap on charges from April 2015 and will be introduced for the default funds of all qualifying schemes. Originally due to come into force in April 2014, the plans mean an individual earning £20,000 would save £35,000 over their lifetime if they saved in a scheme with a 0.85 per cent charge compared to a 1 per cent charge.
An estimated £195m of pension contributions will turn into pension savings over the next decade as part of a fairer society, rather than being “swallowed up” by unnecessary costs and charges, the Department for Work and Pensions (DWP) claims.
The government has also set out equivalent caps for schemes with a combination charge structure. Three different categories of pension charge will be banned altogether:
• payments for sales commission which are deducted from members’ pensions;
• a charge hike when people are no longer employed by a company but leave money in the company’s pension scheme;
• ‘consultancy charges’ where members have to pay for advice given to their employer.
There will also be new rules to make sure all hidden transaction costs in pension schemes are published, in the DWP’s attempt to end “rip off” pensions. The government will then consider whether they should also be included in the new charge cap.
Mr Webb said, “Through the new measures, this government will be the first to get an iron grip on pension charges. We are going to put charges in a vice; and we will tighten the pressure, year-after-year.”
“Over the next 10 years, the new charge cap will transfer £200 million from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first.”
The announcement came soon after the Budget announcements saw a change in flexibility for people to choose how to use their savings.
“Bringing in the change from April 2015 will allow providers, advisers and employers to plan ahead while continuing to make a success of auto-enrolment,” Aegon’s managing director for workplace solutions, Angela Seymour-Jackson, said.
However, the cap has not been welcomed by everyone. The CBI (Confederation of British Industry) said it does not believe it is wise. Director for employment and skills, Neil Carberry, said this was an added burden “especially as schemes will now have to provide expensive advice to every member following the Budget.”
charlotte.richards@ft.com
