Pension fee cap delayed until at least 2015

The Government has confirmed its planned cap on pension fees will be delayed until 2015.

A cap on the management charges applied to pensions will be delayed by at least a year.

The cap was originally planned for April of this year.

Cap on fees

Pension charges can wipe thousands off the total pot of savings. Pensions Minister Steve Webb has previously talked about the need to tackle the issue and enforce a cap.

But he denied the delay represented a U-turn, saying: "Nothing in the response to our consultation has changed our view that action is needed to ensure people are not ripped off by excessive pension charges.”

The proposed cap to pension management fees is between 0.75% and 1%. Management fees on legacy pensions can be as high as 2.3%.

Take charge of your pension saving with a SIPP

Disruption

Yvonne Braun, spokesperson for the Association of British Insurers' (ABI), welcomed the decision.

Bringing changes into the auto-enrolment scheme - where all workers are automatically entered into a pension which their employer contributes to - a year after it started would cause disruption “at an operationally sensitive time with thousands of new employers setting up schemes and provider capacity already strained".

John Lawson, Aviva's head of policy, echoed this sentiment. He said: “Employers are under pressure with the rollout of automatic enrolment - giving them some certainty that any charge caps will apply from 2015 gives them time to prepare. If that means Government and the industry need to take more time to consider the best solutions, then we should take it. The consequences of getting this wrong are serious."

Fighting high fees

Adrian Boulding, Pensions Strategy Director for Legal & General, said: “We would urge all employers with existing schemes to join us in rooting out high or unfair charges.”

Mr Boulding emphasised the need for a cap, warning that high charges can have a dramatic impact on a pension pot, especially if they’re not regularly reviewed.

“In April around 1.7 million employees, who are working for an employer who already has a company pension scheme in place, will be automatically enrolled into their existing (legacy) company scheme for which average charges are 0.79% (according to OFT estimates). These employees will pay these higher charges until they retire – on average around 22 years, which would amount to a £4.3 billion over payment saving in a legacy pension scheme,” he added.

What do you think? Should pension charges be capped? Let us know your thoughts in the comments box below.

Take charge of your pension saving with a SIPP

More on pensions:

Pensions "should be compulsory"

How often should you review your pension?

10 years of work required to get new State Pension

How to top up your State Pension

Saving in a pension? You are as well off on benefits