Government threat of charges cap

THE pensions minister has responded to the growing pressure for action on pension costs by warning that the government has the power to introduce restrictions on charges.

Steve Webb claimed in response to a question from Labour MP Hugh Bayley that the coalition is “absolutely prepared” to put a ceiling on pension fund management charges if they were shown to affect savings levels.

Webb pointed out that the 2011 pensions act gives the government the power to introduce an industry-wide cap on pension fund management charges. He said it would be applied if excessive charges were found to inhibit savings.

The warning, delivered when 48 MPs signed an early day motion this week calling on the government to act to “drive pension charges down”, came ahead of a change to the timetable of radical workplace pension reforms coming into force later this year.

Starting in October, workers will be automatically enrolled into their employer’s existing pension scheme or into a new government alternative, the National Employment Savings Trust (Nest).

The government this week confirmed that the date by which all employers must be paying minimum contributions of 3 per cent into worker pensions has been put back by one year to October 2018.

Jamie Jenkins, head of workplace strategy at Standard Life, said: “For smaller and medium-sized employers, the government’s decision to alter the timescales on both the staging dates and the stepped increases in employer contributions allows more time for the economy to start to recover and for smaller companies to be in a better position to introduce auto-enrolment. This will be vital to its success.”