The government has announced it will introduce a 0.75% charge cap on workplace pension schemes from April next year.
Speaking to Parliament today, pensions minister Steve Webb (pictured) said from April 2015 a 0.75% cap on charges will be introduced for the default funds of all qualifying schemes.
He 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.”
He added: “Over the next 10 years, the new charge cap will transfer £200m 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 measures we are announcing today will make sure that we are seen as world leaders in transparency and value for money.”
This comes after Webb described the proposals as a “full-frontal assault” on charges when he announced the cap back in October last year.
A subsequent consultation document published late last year outlined three possible models for restructuring charges: an across-the-board cap of 0.75%; a comply-or-explain cap, allowing schemes to go up to 1%; or a simple 1% cap.
Webb also announced that as well as meeting the 0.75% cap, from April 2016 schemes will be prohibited from taking money from people’s pension schemes to pay for sales commission.
The Department for Work and Pensions (DWP) said schemes will also have to end the practice of increasing the charges of people who are no longer employed by the sponsoring employer of the scheme – so-called Active Member Discounts or, more accurately according to the DWP, Deferred Member Charges.
Royal London Group chief executive Phil Loney described it as a “lacklustre policy announcement”.
He added: “It is disappointing that in the wake of the Chancellor’s inspirational reforms to the ‘at retirement’ market, dropping of the need to buy annuity, that today we are back to the same old price-capping policy options. A price cap will do very little to improve competition in the workplace pensions market. It will fix the charges that members pay at the level of the cap. The promise to review the level of the cap in 2017 means charges could reduce further in future but they will not reduce at the rate that would be seen if the market was truly competitive and open to active switching.”
Investment Management Association director of public policy Jonathan Lipkin said: “While there is understandable concern in government about assuring DC scheme quality, a charge cap is not the best way to achieve good outcomes and this was a key finding of the 2013 Office of Fair Trading (OFT) market study. Instead, the main focus should be on improving governance structures and standards across the DC environment.”
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