Government confirms workplace pension charge cap
Pension charges to be capped at 0.75% from April 2015.
The Government has confirmed it will cap charges on workplace pensions at 0.75% a year.
The charge will be in place from April 2015, though it will exclude transaction costs such as the buying and selling of investments included in the pension. There will then be a review in 2017, when the Government will look at lowering the cap further and including transaction costs.
The Government had previously set out three options for pension charges: a 0.75% cap, a 1% cap or a “comply or explain” rule, which would have put the onus on schemes to justify why they were charging more than others for their pensions.
Pensions Minister Steve Webb said: “We are going to put charges in a vice and we will tighten the pressure year after year.”
Auto-enrolment
Auto-enrolment into workplace pensions is the Government’s attempt to get us all saving for our retirement. Under the scheme we are all enrolled into a pension scheme. A percentage of your monthly salary is diverted into the pension pot, while your employer and the Government also contribute.
Auto-enrolment is being phased in depending on the size of your employer. The largest firms began offering the pensions in late 2012, while medium-sized employers joined earlier this year.
Cap delay
The charges cap was originally planned for this year, though it was delayed back in January, as we explained in Pension fee cap delayed until at least 2015, in order to give employers more time to prepare.
Last year an Office of Fair Trading study into defined contribution, or money purchase, pension schemes found that many savers were getting poor value for money, in part to the complexity of the schemes. It promped an immediate audit of older, expensive schemes by the Association of British Insurers and its members to ensure savers weren’t being ripped off.
For more, read OFT orders reforms on poor value pensions.
More on pensions:
How to make sure you can pay in to your workplace pension
How to get a big income from a small pension pot
Boost your State Pension by £25 per week
Changes to auto-enrolment push 170,000 out of pensions
The worst places to put your pension
OFT orders reforms on poor value pensions
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Comments
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John Whilst I am all in favour of preventing a rip-off by way of fees, charging a maximum of 0.75% will still be a rip-off in the case of Index Trackers. However, it would be likely to remove actively managed funds from the options. There should be a sliding scale according to the type of fund chosen and the success/failure of the fund by comparison with the sector. Mike
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Bengilda I think that you will find that with virtually all equity funds the dividends will more than cover the expenses so it won't effectively be a charge against capital. However, the dividends and charges will be aggregated with the capital. The dividends will be added as they arise and the charges debited when they are due, so they might not be in sync. with each other. Depending on the choice of funds, it might not be anything to do with success or failure on the part of the Investment Managers. For example, an Index Tracker should not depend on investment skill. However, many Tracker funds are not big enough to buy all the shares in an Index and instead selectively purchase shares to reflect the spread of size and sector in the index. Mike
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I fail to understand why any charges should be made against the capital sum invested. The value of the capital sum should only vary as the market value of the investments changes. Costs of buying and selling and administrative costs should be taken as a regulated percentage of dividends/profits made by the investments, good year equals good profits.. This would ensure that fund managers were either good and successful or were bad and priced out of the market.
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27 March 2014