The government has confirmed it will continue to press ahead with action to cap pension scheme charges at 0.75% from April 2015.
Its draft regulation paper Better workplace pensions putting savers’ interests first has confirmed charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75% as announced in the government’s command paper, published in March.
The draft regulations also ban unfair charges and hidden costs that could, without action, severely reduce people’s pension savings over decades.
The government will bring forward further rules and regulations to ensure that, from April 2015, members of workplace pensions will not be charged consultancy fees for advice to their employer.
In addition, from April 2016, employees in all pension schemes will no longer be charged commission or consultancy fees, and they will not have to pay charges for pension saving which increase when employees change jobs.
The 0.75% cap will cover all charges excluding transaction costs. It was also announced the charge cap will be reviewed in 2017.
The cap will not apply to members who have already ceased contributing when the charge cap is first applied to their scheme, unless they make at least one contributions after the relevant date.
Pensions minister Steve Webb said: “Consumers have had a raw deal from the market for too long.
“A pension is one of the biggest investments you can make in your lifetime, yet many people have seen the savings they have put by all their working life whittled away by high or needless charges they may not even be aware of.
“We are taking strong action to restore confidence in pensions by capping charges, banning hidden costs and putting new standards in place to ensure everyone saving in workplace pensions gets the best possible value for money.
“With millions of people now saving through auto-enrolment, we want to give them confidence that their hard-earned money is working for them and not disappearing in opaque charging structures and ending up lining the pockets of the pensions industry.”
Will Aitken, senior consultant at Towers Watson, added: “The new development is the charges that aren’t being capped, not those that are.
“The cap will not apply to former employees who stopped contributing to a scheme’s default fund before 6 April 2015.
“Even the past savings of some current employees could be out of scope if their future contributions are diverted to a new fund that charges less.”