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.”

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Guru Careers: Investment Writer / Stock Picker

Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

Day In a Page

How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue