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Pension charges 'could be capped at 0.75%'

30 Oct 2013

Pension scheme charges could be capped at 0.75% under new plans unveiled by the Government.

The Pensions Minister Steve Webb has launched a new consultation that proposes capping management scheme charges at between 0.75% and 1%, in a bid to help people save for their retirement.

The Office of Fair Trading estimates that there are more than 186,000 pension pots with £2.65 billion worth of assets subject to an annual charge of more than 1%.

Any small variation in fees can make a significant difference to the value of an individual’s final pension pot.

According to government calculations, someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.

As pension auto-enrolment continues to be rolled out over the coming years, industry experts are being urged to give their opinions on a range of possible options for a proposed limit on scheme charges.

However, any cap would only apply to funds held in auto-enrolment schemes.

Announcing the proposals, Pensions Minister Steve Webb said: ‘The Government believes that enough is enough on charges. People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges.

‘We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75% per year.’

Yet the National Association of Pension Funds described the proposed cap as a ‘blunt tool that would inhibit innovation’.