Call to lower pension charge cap

Which? said that setting the cap for managing a fund at a lower level of 0.50 per cent rather than 0.75 per cent as suggested by the Government could result in someone being £40,000 better off at retirement.

Last week, the Government unveiled plans to cap the annual charge for managing a pension pot at around 0.75 per cent to one per cent, amid concerns that people are at risk of being placed into pensions with high fees which will eat away at their savings and wipe thousands of pounds off their eventual retirement income.

A consultation paper has been launched and the Government has said that any final cap could lie somewhere between the two levels suggested.

Firm plans are set to be put in place next year, as automatic enrolment of people into pension schemes continues. Auto-enrolment started last year with larger firms and the landmark reforms to boost the number of people saving for their later years will eventually create up to nine million people newly saving into a pension or saving more.

Concerns have been raised that as smaller firms with less experience of pensions are brought into the reforms, they will be at a greater risk of placing workers into old and high-charging schemes. Charges in schemes set up before 2001 are around 26 per cent higher than those set up since.

Which? says 35 per cent of people who have opted out of auto-enrolment, or plan to opt out, say this is because they do not trust the pension industry to look after their money, and one in five (22 per cent) are concerned about the quality of the scheme.