The measures are intended to protect pension pots and encourage people to save for their retirement through workplace pensions.
According to the Treasury, the government anticipates that up to 9 million people will open new pensions under workplace schemes, which is expected to increase the amount being saved in to auto-enrolment pensions by approximately GBP11bn annually.
The average charge on new pension schemes is reportedly around 0.51%; however the Office of Fair Trading has reported that annual charges of over 1% are made on more than 186,000 pension pots with GBP2.65bn assets. Charges include costs and fees levied on the scheme member for a range of services such as administration fees, contribution fees, active member discounts and investment fees, which include transaction costs.
A consultation by the Department for Work and Pension has also begun, with regard to capping pension fees and increasing transparency in the pensions sector. Industry members and the public are being asked for their views on how a cap that protects savings should be designed. The caps could include: a higher charge cap of 1% of funds under management; a lower charge cap of 0.75% of funds under management; or a two-tier ‘comply or explain’ cap.
It is proposed that there would be a standard cap of 0.75% of funds under management for all qualifying schemes and there would be a higher cap of 1% for employers who explained to the Pensions Regulator why a scheme charged more than 0.75%.
Sajid Javid, Financial Secretary to the Treasury, commented: “The government is determined to help hard working families and that includes making sure someone’s saving will deliver the biggest possible returns and not be eaten away at by a variety of charges and fees. As part of