The government will embark on what the pensions minister, Steve Webb, called a ‘full frontal assault on pension scheme charges’ against pension funds that ‘fleece’ their customers with unjustified and ‘excessive’ fees.
The level set is expected to be set as low as 0.75 percent, which will steal a march from Labour’s proposal of a one percent cap.
A recent report from the Office for Fair Trading found that million of workers were being short changed by the level of fund fees but had held back from recommending a one size fits all cap. According to the OFT there are some 186,000 pension schemes charging fees of one percent or over.
However newer schemes do have lower charges and the average was only 0.5 percent on pensions taken out last year.
The pensions industry has warned that a cap could become a ‘default setting’ and just mean that all funds would now set their charges at the maximum they could, so some savers would then see higher fees.
The TUC welcomed this move to cap with TUC General Secretary, Frances O’Grady, saying:
"We welcome the Minister's hint that there will be a 0.75 per cent cap on auto-enrolment pension charges. This would be a good initial step and provide reassurance that savers are not being ripped off.
"It will be just as important to make sure that there are no charges hidden away in the management of scheme investments, no charges going as commission to consultants and no hidden penalties for savers who are no longer contributing to the scheme – the so-called active member discounts. In the longer term we want the charge cap to be reduced to 0.5 per cent – the level that good schemes like NEST already charge.
"This looks very much as if the government has not only listened to union and consumer calls for a charge cap and better consumer protection, but is prepared to act. With living standards so tightly squeezed it is vital that every pension pound saved works as hard as possible. Today, Steve Webb is helping bring that about."