The Department for Work and Pension is consulting on the proposed reforms, intended to help boost savings.
The consultation follows the roll out of the government’s auto-enrolment scheme that will seek advice on three possible options: a 1% cap, a 0.75% cap, or a two-tier “comply or explain” cap.
The third option – “comply or explain” proposal means employers would have access to a 1% charge cap, but would have to provide The Pensions Regulator with the clarification why the scheme charges exceed 0.75%.
Mr. Webb has said: “What we are proposing is a range of options, including the option of a 0.75% charge cap … this is the week we finally tackle the scourge of excessive pensions charges”.
Mr. Webb has further explained the mechanism that 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 percent charge and over £230,000 with a 1.5 per cent charge.
A pension saver with a 0.75 percent annual charge on their pension pot could eventually end up £100,000 better off than if they had been charged a rate of 1.5 percent.
During September, a review by Office of Fair Trading (OFT) turned down to call for a cap on pension charges. Although the average charge on new pension schemes established in 2012 is about 0.51 percent, OFT evaluates that there are over 186,000 pension pots with £2.65bn assets subject to annual charges of above 1 percent.
The fresh move by government is likely to be welcomed by consumers, however, it may receive a cold reception from the financial services industry whose earnings will be affected by the proposed cap.
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