Plans to end “rip-off” fees which gobble up pension savers’ retirement pots have been outlined with a 0.75 per cent cap set to be imposed on charges from April next year.
The Government had been considering placing the cap between 0.75 per cent and one per cent, amid concerns people are at risk of being put into pensions with high fees which eat away at their savings and wipe thousands off their retirement income.
Pensions Minister Steve Webb said that, over the next decade, the new charge cap will transfer an estimated £195m out of the profits of the pensions industry and into the pockets of retirement savers.
Someone on a £20,000 salary would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% charge for managing their pension savings compared with one which had a one per cent charge, the Government said.
Three different types of pension charge will also be banned altogether.
These are charge hikes imposed when someone no longer actively contributes to their pension scheme, perhaps because they have changed jobs; “consultancy charges” imposed on members of a pension scheme who have to pay for advice which is not given to them but to their employer; and payments for sales commission which are deducted from members’ pensions.
Mr Webb, who promised a “full frontal assault” on schemes giving poor value, said there will be new rules to make sure hidden costs in pension schemes are published, so the Government can consider whether these should be included in the cap.
He said the Government is getting an “iron grip” on pension charges. adding: “It’s time to put the saver first”.
The Government has set the date of April next year for the charge cap to come in to give firms time to adjust.
The announcement came as the first phase of a shake-up into how people take their retirement pots, announced by Chancellor George Osborne in last week’s Budget, came into force.
Mr Osborne’s changes mean around 400,000 people will be able to access their pension savings in a more flexible way in the coming financial year.
From today, the size of the total pension savings that can be drawn down entirely and taken as a lump sum has been raised to £30,000 and size of a small pot that can be taken as a lump sum, regardless of total pension wealth, has been increased five-fold to £10,000.