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