Charges on pension savings worth £10bn which are held in expensive legacy pensions are to be cut to the auto-enrolment scheme charge cap of 0.75 per cent under a deal struck between the government and pension providers, the Department of Work and Pensions has confirmed.
According to a statement, pension providers have identified about £10bn worth of legacy pension savings on which fund charges would be reduced to the level of a new charge cap on workplace pensions, due to come into force on 6 April.
Pensions minister Steve Webb said providers should come up with “big, bold” answers to tackle high charges, after a report identified up to £26bn in pension savings facing charges of 1 per cent or more.
As yet, no details have been provided as to when the reductions would apply, or to which funds.
Mr Webb said: “I have had some tough conversations with the pension providers to make sure they are taking this matter seriously and put in place changes to deliver better value for savers,” said Mr Webb.
“I was reassured by the vast majority who were ready to take action and were already moving funds to lower charging environments. For many it was plain business sense, because old schemes were running on old expensive IT systems.
“This will give more people confidence to save for the future.”
The Financial Conduct Authority and HM Revenue and Customers will work with the Department for Work and Pensions to determine whether there are any “inappropriate barriers to improvements that would be in members’ interests”, so that such barriers could be removed.
An Independent Project Board report on high charging in legacy pension schemes was published in December 2014, and prompted discussions with the heads of all major pension providers to agree action on pension funds potentially facing high charges.