Workplace pension scheme charges will be capped at 0.75 per cent, pensions minister Steve Webb revealed yesterday, in the latest move to affect the sector in the past week.
The changes will transfer about £200 million pension industry profits to consumers over the next decade, Webb claimed, as he vowed to “put charges in a vice” and tighten the screw each year.
Starting next month, the cap will also apply to schemes people are automatically enrolled in by their employers, MPs heard.
The Liberal Democrat minister has previously said a 0.75 per cent cap aims to safeguard people who don’t rigorously monitor their pensions.
In a statement to the Commons, Webb claimed the coalition government was the first administration to get an “iron grip” on pension charges. “At the heart of our plan is a charge cap of 0.75 per cent for the default funds of all qualifying schemes, with equivalent caps for schemes with combination charge structures. This cap will apply from April 2015 and it will apply to all scheme used for automatic enrolment,” Webb said.
He added: “Over the next ten years the new charge cap will transfer around £200m from the profits of the pensions industry to the pockets of savers.”
The new cap will be reviewed in 2017 to examine whether it should be cut. Pension experts said yesterday that consumers should be able to compare pension schemes in future as costs and charges will have to be disclosed in a standard way.
Webb also told MPs that schemes would not be allowed to take money from people’s pension pots to pay for sales commission from April 2016.
In addition, schemes will not be allowed to increase charges for people who are no longer employed by the sponsoring employer of a scheme, so-called deferred member charges.
“It is not right that people should pay more in charges simply because they have moved employer and consequently stopped contributing to a scheme,” the minister said.