View the article online at http://citywire.co.uk/money/article/a743258
‘Time to put the saver first’: gov’t confirms 0.75% pension charge cap
The government has placed a cap on charges and banned hidden pension costs that secretly eat away at workers’ savings.
Pensions minister Steve Webb has called time on ‘rip-off pension charges’ by announcing a cap of 0.75% and banning hidden costs in workplace pension schemes.
As the coalition focuses its efforts on encouraging individuals to save for retirement through auto-enrolment, Webb (pictured) said he wanted workplace schemes to deliver value for money by restricting charges.
From April 2015 a 0.75% cap on charges will be introduced. It will be applied to the default funds that workers’ pension contributions are automatically put into. Some workers are given investment options but many do not move their money from the default funds. If a worker chooses a different investment option other than the default fund it may cost more that 0.75%.
By introducing a cap the government estimates that over the next 10 years an extra £195 million will be saved on costs, meaning individuals will keep more of their money in their pension pots.
Even a small reduction in charge can add up to a significant amount over a lifetime. A worker earning £20,000 would save on average £35,000 over their lifetime if they saved in a scheme with a 0.75% charge compared to a 1% charge.
The government has also gone further and banned hidden charges in pension schemes. These include payments for sales commission which are deducted automatically from members’ pensions and consultancy charges where members have to pay for advice given to their employer.
It will also prevent schemes increasing their fees for former employees who have pensions with a company they no longer work for.
In a push for transparency pension schemes will have to publish all their costs and the government will later decide if any more costs should come under the cap.
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.’
He said that over the next decade millions would be transferred ‘from the profits of the pensions industry to the pockets of savers’.
‘Pension savers have paid too much, for too long. It’s time to put the saver first,’ he said.
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