Government has raised its flag to introduce charge caps by pension providers. There have been plans this from long time and now finally they have announced it. However, it’s said that the new rules will take effect a year later than originally suggested.
Pensions Minister Steve Webb has said that, Management fees charged by pension providers will be “put in a vice” and capped from April next year.
Mr Webb had promised that the government would launch a “full frontal assault” on pension fees.
The govt said that it would save tens of thousands of pounds for those saving money all through their working life following the latest announcement, made to the Commons on Thursday. Though there is a fear that it could lead to less option for savers.
In 2012, the average charge was set to 0.51% on a pension, but the Office of Fair Trading (OFT) estimated that approximately there were more than 186,000 pension pots with £2.65bn worth of assets subject to annual charges of more than 1%. There were some older schemes which use to charge up to 2.3% a year of management fees which is very high amount, a decade ago.
The OFT also criticises pension schemes for delivering “poor value for money” as per the September reports, which contain a worth of £40bn savings.
Recently most of the workers started showing interest to sign up government funded National Employment Savings Trust (Nest) scheme. It’s also estimated that nine million extra people would join so-called “defined contribution” schemes over the coming years.
Mr Webb said “We are going to put charges in a vice; and we will tighten the pressure, year-after-year,”
In addition to the cap on fees, the government will:
- Ban payments for sales commission being deducted from pensions.
- Outlaw a rise in charges for those who have left a company, but leave money in the pension scheme.
- Ban consultancy charges that see pension scheme members paying for advice given to their employer by a pension provider.
Few pension firms feel that due to the increased charges there are chances that providers would become more choosy about who they offered the best deals to which effect the common people leaving them less choices.
Sean McSweeney, of Chase de Vere said that, “This could result in employees being faced with less choice, inferior products and a lack of ongoing service”.
Gregg McClymont, Labour’s shadow pension’s minister, said: “Savers hit by the cost of living crisis have lost out because the government has repeatedly delayed plans to introduce a cap on rip-off pension fees and charges”.
“Today the government has finally admitted that a charge cap is needed but ministers must have the courage of Labour’s convictions and introduce a cap now as they promised.”
Tom McPhail, of Hargreaves Lansdown said, “There is a huge amount for the pensions industry to deal with at present, not least as a result of last week’s Budget announcement, so it is entirely sensible that the government has given the industry some reasonable time to accommodate these changes”.
But the Neil Carberry, CBI director for employment and skills, said: “We do not think capping fees at this level is wise, especially as schemes will now have to provide expensive advice to every member following last week’s Budget.”