In the second major shake up to pensions in little over a week, the Government has announced that charges on all schemes used to automatically enrol workers will be capped.
Over the next few years, all workers over the age of 22 and earning above a set level, currently £9,440 per year, will be automatically enrolled into a workplace pension.
Since Automatic Enrolment was introduced charges on pension schemes have come under the spotlight, with many experts accusing pension providers of charging excessive fees. It now seems that the Government will act to cap the fees paid by workers.
Speaking in the House of Commons, Pensions Minister, Steve Webb, announced that from 2015 the maximum annual charge on a scheme used for Automatic Enrolment would be 0.75%.
Webb said: “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. 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 announcement means the maximum charge for a member with a pension fund of £10,000 would be £75 per year.
He went on to say that in 2017 the Department for Work and Pensions would recommend whether to reduce the annual charge even further.
Today’s announcement received a mixed reaction, with at least one group disappointed Mr Webb didn’t go further; Gina Mills of the True and Fair campaign, said: “If the Government is to get an ‘iron grip on pension charges’ it requires more than a 0.75% cap on Annual Management Fees for auto-enrolment schemes.”
“All transaction costs and hidden fees need to be included if the rip-off is to end and savers are to finally get transparency on what they are paying to save into a pension.”
“For two years the True & Fair Campaign has been calling for the pension and investment management industry to disclose 100% of all costs, including hidden costs and fees, in one number, in pounds and pence. Yet Steve Webb today reminded us that the OFT has found as many as 18 different charges are levied by pension providers which remain ‘hidden or complex’.
“While the Government’s commitment to end this rip-off and include hidden costs and fees within a pensions cap is welcome, waiting until 2017 to include transaction costs and other fees is not, and allows anti-consumer charging to continue unabated for several more years.
Ban on active member discounts and adviser commission
In his speech Mr Webb went on to say that active member discounts, which effectively mean former employees pay higher charges than current workers, will be banned.
He also announced the payment of legacy commissions to advisers would be banned from 2016, potentially pushing down fees paid by pension scheme members and transferring the cost of advice to employers.
Mr Webb said: “From April 2016 schemes will be prohibited from taking money from people’s pension schemes to pay for sales commission,’ he said. ‘And schemes will have to end the practice of increasing the charges of people who are no longer employed by the sponsoring employer of the scheme.”
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