Government sets 0.75% charge cap on workplace pension schemes
Yesterday saw Pensions Minister Steve Webb announce tough new measures to “end rip-off charges and ban hidden costs” in workplace pension schemes in an attempt to help people build the best possible retirement income from their savings.
The Department for Work and Pensions proposed a cap on pension charges as part of a consultation which took place between October 2013 and November 2013, with a number of different options discussed.
It has now been announced that from April 2015 there will be a charge cap of 0.75% for the default funds of all qualifying schemes. The government also set out equivalent caps for schemes with contribution charge structures.
The following three different categories of pension charge will be banned altogether:
- Payments for sales commission which are deducted from members’ pensions
- Charge hikes when people are no longer employed by a company but leave money in the company’s pension scheme
- “Consultancy charges” where members have to pay for advice given to their employer
There will also be rules introduced to make sure that all hidden “transaction” costs in pension schemes are published, and the government will be considering whether these should also be included in the charge cap.
Steve Webb said: “Through the new measures, this government will be the first to get an iron grip on pension charges. We are going to put charges in a vice; and we will tighten the pressure, year-after-year.
Over the next 10 years, the new charge cap will transfer £200 million from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first.
The pensions revolution does not stop at auto enrolment. People need to have confidence that putting money into good pension schemes where their money will be looked after.”
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