The government has proposed three ways to cap auto-enrolment pension scheme charges in a consultation paper published today.
Yesterday pension minister Steve Webb (pictured) told the House of Commons that one option would be an absolute charge cap of 0.75% on auto-enrolment pension schemes.
The consultation has also proposed a 1% charge cap, in line with current stakeholder products.
The third option is a two tier ‘comply or explain’ cap where there would be a standard cap of 0.75% for qualifying schemes, with a higher cap of 1% available to employers who reported to the Pensions Regulator why the scheme charges exceeded 0.75%.
It said a final cap could lie in between 1% and 0.75% depending on the responses to the consultation.
The Treasury estimated that an individual who saved £100 a month for 46 years could retire with an extra £66,000 if charged 1% and an extra £100,000 if charged 0.75%, compared in both instances to charges of 1.5%.
Webb said: ‘The government believes that enough is enough on charges. People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges. We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75% per year.
‘I’m confident that we will make the system fairer for anyone being automatically enrolled into a workplace pension and will finally address the issue of charges which has been neglected for far too long.’