Insurers warn over Government cap on pension plan charges
But 0.75 per cent limit is welcomed by consumer groups and advisers
The planned cap on charges on workplace pensions will drive small schemes out of business and give workers less financial freedom, insurers warned yesterday.
The announcement by the pensions minister Steve Webb that a charge cap of 0.75 per cent will be introduced for auto-enrolment workplace schemes from April 2015 prompted anger in the industry.
Mr Webb promised: “We are going to put charges in a vice – and we will tighten the pressure year after year.”
But Kevin LeGrand, the head of pensions policy at Buck Consultants, said: “If the pensions charge cap becomes too tight, something may have to give. The outcome may be to increase the pace of the current trend to drive small and bespoke schemes into oblivion, resulting in all workplace pension provision being at the lowest common denominator level.”
The Department for Work and Pensions had consulted the industry and consumer groups on whether a cap should be introduced – and, if so, whether it should be set at 0.75 per cent or 1 per cent. Mr Webb has long made it clear that he favoured a cap on charges, so it seemed inevitable that it would be brought in.
As well as the cap on fees, the Government said it will ban sales commission being deducted from pensions, outlaw increases in charges for those who leave a company but remain in the pension scheme, and ban charges for advice given to employers by a pension provider.
The cap was welcomed by consumer groups such as Which?, which pointed out that paying a 1 per cent rather than 0.75 per cent annual charge could cost a saver nearly £40,000 over their working life.
Tom McPhail, the head of pensions research at Hargreaves Lansdown, also welcomed the move, saying: “It is vital that pension scheme members have confidence that their workplace pension will give them good value for money. The charges cap addresses that issue and means that even if they can’t afford a Lamborghini at retirement, at least pension investors won’t be helping to pay for the fund managers’ new sports cars.”
But the moves left several senior providers disappointed. Malcolm McLean, a senior consultant at Barnett Waddingham, said: “A 0.75 per cent cap will obviously limit the ability of employers to choose a scheme that may well have higher charges but delivers far better outcomes for their staff. On the commission ban, this will be seen as a huge blow to advisers, which some estimates suggest could cost them £150m and 1,000 jobs.”
Darren Philp at The People’s Pension said: “The Government has missed a huge opportunity with this consultation. Instead of cleaning up pensions, it has sanctioned more complexity that will just create more confusion.”
However Philip Smith, a director in the defined-contribution team at the accountants PwC, added: “A cap ... is another important step towards simpler and more transparent pension schemes and should go a long way to help rebuild trust in pensions as a long-term savings tool.”
- 1 East 17 bandmember Brian Harvey in 'very desperate situation’
- 2 Is this bridge haunted by the ghost of nu rave?
- 3 Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
- 4 The West has it totally wrong on Lee Kuan Yew
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
East 17 bandmember Brian Harvey in 'very desperate situation’
Vladimir Putin says Russia will fight for the right of Palestinians to their own state
Is this bridge haunted by the ghost of nu rave?
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
Saudi Arabia says it won't rule out building nuclear weapons
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
The West has it totally wrong on Lee Kuan Yew
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...