Steve Webb, minister for pensions, has today launched a command paper outlining the new charges cap on default pension plans.
Pension charge cap to be set at 0.75%
The government is pushing ahead with the 0.75% charge cap on workplace pensions it has been announced.
New plans unveiled to Parliament confirm the government is to press ahead with action to root out rip-off charges, and apply new governance standards across all qualifying workplace pension schemes from April 2015.
Draft regulations are published today that confirm charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75% annually.
Small differences in charges can have a major impact on a pension pot by the time a person retires. An average earner, due to accumulate a pension pot of around £30,000, could benefit to the tune of £1,600 by saving in a scheme charging 0.75% compared with one which charges 1.5%. And for many the boost could run into tens of thousands of pounds.
Other charges targeted
The draft regulations also ban unfair charges and hidden costs that could, without action, severely reduce people’s pension savings over decades.
These include ‘active member discounts’, where deferred members face higher charges than those still paying in to their pension pot.
‘Consultancy charging’ is also going to be scrutinised. The aim is that from April 2015, employers will not be able to pass on any advice consultancy fees to members of their workplace personal pension schemes.
Which? welcomes the move
Which? executive director, Richard Lloyd, said: ‘Consumers will applaud ministers for cracking down on rip-off pensions. It’s vital that these changes are delivered without delay, so that millions can look forward to their retirement, knowing that their hard-earned workplace pensions are better protected.
‘More will still need to be done, however, to crack down on excessive charges across the board, and to ensure that all retirement products provide value for money.’
The latest announcements from Steve Webb are part of a whole raft of pensions changes which allow people more options in how they take income from their pension at retirement.
- My retirement: what do I need to know? – our all-inclusive guide to retirement
- How much money will I need in retirement? – the key facts about what you’ll need
- Income options for your pension under the 2015 rules – what’s changing in this area