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Government caps workplace pension charges at 0.75%
by Dylan Lobo on Mar 27, 2014 at 14:18
It estimates an individual earning £20,000 would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% versus a 1% charge.
'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,' Webb said.
'Over the next 10 years, the new charge cap will transfer £200 million 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 Investment Management Association (IMA) is not convinced that the introduction of the cap is the best way to police the auto-enrolment schemes, highlighting a lot more work needs to be done on corporate governance.
IMA director of public policy Jonathan Lipkin said in a statement: '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.'
He added: 'The IMA remains committed to working with government and regulators to facilitate better governance as well as improved consistency and transparency of charges and costs disclosure. Such consistency and transparency is essential for building public trust in the pensions system.
'The government has correctly recognised that charges and transaction costs should not be bundled together in a cap, again a clear conclusion of the OFT. Such an approach would have been counter-intuitive and counter-productive, unduly complicating the default design process and artificially constraining scheme decision-makers.'
Royal London was more scathing of the measures, describing them as 'lacklustre'.
'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.' Royal London chief executive Phil Loney said in a statement.
'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.
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