Cap on pension charges could be introduced
Published on 24 October 2013 02:00 PM
Fears that people could be placed into 'rip-off' pension schemes have prompted Government action on the issue.
Pensions minister Steve Webb has told MPs there is a 'strong case' for imposing a cap on pension charges, which continue to eat away at savings pots across the country.
A recent report by the Office of Fair Trading (OFT) warned that up to £40 billion of pension savings could already be sitting in schemes that are delivering poor value or are at considerable risk of doing so.
'Unacceptable practice' carried out in the past.
The Government has therefore decided to launch consultation looking into pension charges as up to 10 million new retirement savers are created under its landmark reforms.
Answering questions about the progress of automatic enrolment into pension schemes, Mr Webb told the Work and Pensions Committee there had been some 'unacceptable practice' carried out in the past.
He also commented on findings from the OFT that suggest most employees do not engage with, or understand, their pensions.
'I think these things are all deal-able with,' he declared.
'Our consultation will be looking at options for charge caps and we'll move fairly fast on that.
'I think there is a strong case for a charge cap. As you'll see when we produce the consultation document, hopefully we've got some innovative ideas about how that might be done.'
Most employees ‘do not engage with' their pensions.
Mr Webb has previously suggested that a charge cap of 1% a year could be placed on people's pension savings, although he reassured the committee that the government will be carrying out a 'genuine consultation' setting out a 'range of options'.
He also pointed out that some pension schemes were set up around the 1990s, when the higher rates of return of the time masked charges that now appear 'clearly excessive' in hindsight.
The Pensions Regulator and the Association of British Insurers (ABI) are already working to make improvements in the industry.
But while the OFT also agrees something needs to be done with regards to 'rip-off' schemes, it stopped short of recommending a cap on charges.
Copyright Press Association 2013