Charge cap proposed by Miliband could stifle innovation

Charge cap proposed by Miliband could stifle innovation

A charge cap would be complex to implement across the range of retirement products and could stifle innovation at the early stage of development, Alan Higham, retirement director at Fidelity Worldwide Investment, has said.

He said: “We would prefer to see regulators focus on distribution and encourage the uptake of good quality guidance advice to ensure customers’ interests are put first.”

Clarity and fairness around charges and relative pricing is imperative for consumers, he said, to facilitate competition in the market.

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Last week, Labour leader Ed Miliband, fearing consumers could face excessive drawdown charges, proposed to cap charges on drawdown products.

He said: “We will act to protect savings by capping rip-off fees and charges on new pension products. People who draw money out of their hard-earned pots should have similar protections to when they put money in.”

Garry Latimer, innovation architect at Aegon, said that many propositions were moving online so could not warrant high fees, but he added: “If we want drawdown to work in the marketplace, we have to find a reasonable level so that providers can and will want to provide the service.”

Claire Trott, head of technical support at Sipp operator Talbot and Muir, said: “Drawdown involves set processes not dependent on pot size, so having a cap based on a percentage calculation does not make sense.

“Smaller pots would benefit from a percentage charge cap, but as the process is the same, irrelevant of pot size, it may lead to providers not being willing to offer these options to the lower end of the market.”

Adrian Walker, retirement planning manager at Old Mutual Wealth, said: “Introducing a charge cap is unnecessary because market forces will impose an effective cap. Many providers make no charge for drawdown‎ so this appears to be an unnecessary solution to a problem that does not exist. If a provider is charging too much and others nothing, people will vote with their money.”

Adviser View

Nick Evans, financial planner at Hertfordshire-based One Life Wealth Planning, said: “The regulator should continue to encourage provider transparency and competitiveness, and let the market do the work.

“You cannot force capping costs on an industry that is competitive by nature, and needs to be competitive. Continual efforts should focus on transparency, pricing and simplicity to allow the consumer to make informed choices.”