Pensions Minister Steve Webb has announced that, with effect from April 2015, a pensions charge cap of 0.75% will be introduced for the default funds of all qualifying schemes.
Over the course of the next decade the Government has forecast that an additional £195m of pension contributions will become pension savings, rather than being spent on costs and charges.
According to Government calculations, someone earning £20,000 would save around £35,500 over their working lifetime, if they saved into a scheme with a charge of 0.75% as opposed to a 1% scheme.
In addition, the Government has set out equivalent caps for schemes with combination charge structures, and three types of pension charge will be abolished entirely.
Payments for sales commission deducted from members’ pensions, charge hikes for ex-employers with money still in the scheme, and ‘consultancy charges’ where members have to pay for advice given to their employer will all be axed.
The Government also intends for all hidden transaction costs to be published, after which the Government will consider whether or not such costs should be included in the charge cap.
Webb said that the Government would be the first to get an iron grip on pension charges, and that it was time to put savers first.
However, Towers Watson has said that the charge cap would do some good, and some harm as well.
UK Head of Pensions at Tower Watson John Ball said that most people working for a large employer would be paying well under 0.75% in any case, and that, for some, charges might even rise slightly due to the need for more capital or because data is collected in different ways.
Ball went on to say that 0.75% was far too much for a basic product, and criticised the cap for only looking at what people paid and not what they were getting for their money.