PLANS to impose a cap on “rip off” charges for workplace pension schemes have been pushed back a year to give employers more time to adjust.
Pensions minister Steve Webb had previously promised a “full frontal assault” on fees, even though the Office of Fair Trading stopped short of calling for a limit on charges following its recent review into the £275 billion market.
In a written statement to the Commons yesterday, Webb said the UK government has completed its consultation on the issue and remains “strongly minded” to introduce a cap, but any limits would not be introduced before April 2015.
Webb added: “Nothing in the response to our consultation has changed our view that action is needed to ensure people are not ripped off by excessive pension charges. Having listened to feedback from our consultation, we have decided that it would be only right and fair to give employers a minimum of 12 months’ notice of the changes that we will announce.”
Phil Loney, chief executive of mutual life and pensions firm Royal London, welcomed the postponement but said he remained opposed to an “anti-competitive” limit on charges.
He added: “The minister’s focus should be upon creating a truly competitive market that serves customers well. In a competitive market without impediments to switching between provider, charges on workplace pensions will continue to fall as providers pass on the effects of increased scale.”
Plans unveiled last year would have imposed a maximum fee of either 0.75 or 1 per cent, but Loney has warned that some providers may see the introduction of a cap as an opportunity to hike their fees, as the average cost of a workplace scheme is 0.52 per cent.
According to previous government calculations, someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1 per cent charge, and more than £230,000 with a 1.5 per cent charge.
A saver with a 0.75 per cent charge on their pension pot could eventually end up £100,000 better off than if they had been charged a rate of 1.5 per cent.
Legal & General has argued for the limit to be set even lower, as it has already capped charges at 0.5 per cent for its auto-enrolment schemes, designed for companies that are obliged to offer pensions for their staff.
More than 2.5 million people have now been placed into company pensions as part of the auto-enrolment initiative, and Angela Seymour Jackson, head of workplace solutions at Edinburgh-based Aegon, said the cap’s deferral will allow firms and providers to concentrate on enrolling thousands more people into schemes.
She added: “Rushing new scheme conditions through at this critical stage would have disrupted many employers’ plans to use good existing schemes. The pensions minister’s decision will avoid employees losing out on valuable contributions while employers made alternative arrangements.”
Tom McPhail, head of pension research at Hargreaves Lansdown, said: “30,000 companies are due to automatically enrol their staff into a pension in 2014. Pushing a cap through for this April would have been a mad rush and could well have derailed the auto-enrolment programme.
“Waiting a year will give valuable breathing space to employers so they can get auto-enrolment up and running.”