A new plan proposed by the Government today to cap pension providers’ management fees has been unveiled in an attempt to save people thousands of pounds on their pension schemes.
The Treasury announced it is proposing that management fees charged by pension providers should be capped between 0.75% and 1%.
In an announcement released this morning, Minister for Pensions Steve 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.”
Options currently being considered by the Treasury include:
- A higher charge cap of 1 per cent of funds under management
- A lower charge cap of 0.75 per cent of funds under management
- A two-tier ‘comply or explain’ cap. There would be a standard cap of 0.75 per cent of funds under management for all qualifying schemes. A higher cap of 1 per cent would be available to employers who reported to the Pensions Regulator why the scheme charges in excess of 0.75 per cent.
Commenting on the announcement by Minister Steve Webb, Tim Thomas, Head of Employment Policy at manufacturers’ organisation EEF, said the Government’s plan to cap charges only highlighted the impact these can have on an employee’s pension.
“Too many employers and workers don’t know and cannot easily find out how much of their money paid into pensions is eaten up in fees and charges, which ultimately shrink the size of pension pots,” Mr Thomas said.
“Government must now ensure that all charges are transparent, with workers and employers told of the seismic impact that seemingly small charges will have on the pensions workers ultimately receive.”