One of Britain’s largest insurers has warned that plans to clamp down on the charges pension providers heap on to their customers do not go far enough and will cost savers more than £4bn.
Legal & General, which has eight million customers in the UK, said Government proposals to cap fees at 0.75 per cent of the funds being managed will be “ineffective in driving down costs” and will fail to prevent savers getting a raw deal. L&G’s position is at odds with some of its rivals who oppose a cap.
John Pollock, the head of Legal & General Assurance, said: “A Pension Charge Cap at 0.75 per cent is a poor idea by the Government. Not only will it potentially cost legacy scheme pension savers £4.3bn in lost savings, it will also be ineffective in driving down pension charges for millions of savers.
“The Office of Fair Trading state typical new auto enrolment schemes actually charge 0.51 per cent. Having a cap at a much higher figure will have no impact on new pension schemes, and will result in legacy savers being treated unfairly compared to new savers.”
The Coalition has acknowledged that people could be losing thousands of pounds because of high charges across the industry. The Office of Fair Trading estimates that there are more than 186,000 pension pots with £2.65bn worth of assets subject to an annual charge above 1 per cent.
Any changes to the law will affect people automatically enrolled into a pension scheme by their employer. Some nine million Britons – almost a third of the workforce – will be enrolled over the next few years and about £11bn more per year will be saved in work pensions.
Mr Pollock added: “Legal & General is in favour of having a meaningful cap at 0.5 per cent, not only for new auto-enrolment schemes, but for legacy pension schemes as well.
“Competition is driving down the cost for new auto-enrolment schemes, but is having no real impact on legacy schemes because employers have historically rarely switched suppliers.”
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