The audit covered all pre-2001 defined contribution workplace pension schemes administered by members of the Association of British Insurers, those schemes set up after 2001 with charges higher than an equivalent 1 per cent annual charge, and post-2001 schemes with multiple charges.
The report, which follows on from an Office of Fair Trading probe last year, found that between £23.2bn and £25.8bn of assets under management out of the £67.5bn audited, were exposed to charges of more than 1 per cent.
Some, especially concentrated among savers with pots of less than £10,000, had charges of upwards of 3 per cent.
The report said the independent governance committees must evaluate charges and make recommendations to providers by the end of next year, by which date they should also have agreed an implementation plan.
Darren Philp, director of policy and market engagement at The People’s Pension, called the report an “eye opener” on how complex charging structures can confuse consumers into paying far too much for their pensions.
“There is now an unanswerable case for a full standardisation of charges. We need a system that works for savers and stops providers from gaming charging practice to the detriment of consumers.
“The government’s charge cap doesn’t solve the problem either. Our own calculations show that charges permissible under the cap could result in an annual member cost of up to 1.5 per cent over five years under the methodology used by the Independent Project Board.”
Some firms have ensured their annual charges sit under the cap but apply initial contribution charges or member fees to make up for lost revenue. Currently trading charges are also not included under the cap.
Huw Evans, ABI director of policy and incoming director general, defended providers by stating that they remain committed to building on the last decade’s changes which have seen average pension charges fall to their lowest-ever levels for auto-enrolment schemes.
“This report will help providers do more to identify and tackle those workers who could be impacted by higher charges and ensure the right outcome for them.”
Gareth Evans, head of corporate affairs at Royal London Group, said that in advance of the report’s publication the firm was reviewing workplace pension product charges in preparation for the default investment charge cap from April 2015.
“Although many of our schemes are already compliant with the charge cap, we are reducing the charges for a sizeable number of schemes. Like most providers we have a number of different workplace pension plans dating back to the 1980s.
