Conservatives yesterday announced radical reforms to pension charges designed to help people who have worked hard and done the right thing by saving for their retirement.
Conservative MP and Financial Secretary to the Treasury Sajid Javid MP announced that the Government will:
· Introduce a cap on pension charges to save hardworking people thousands of pounds.
· Make sure employers and savers are better-informed about the pensions available, so they can make the choice that is best for them.
The Government will now consult on the best way of reducing these charges.
There are still too many people subject to high pension charges. While charges for new schemes have been coming down in recent years there are still a number of outliers that are failing to deliver value for money for savers. For example, while the average charge on new pension schemes set up in 2012 is around 0.51 per cent the Office of Fair Trading estimates that there are over 186,000 pension pots with £2.65 billion assets subject to an annual charge of above 1 per cent.
· Reducing pension charges can save considerable amounts of money.
o In the case of someone who saves throughout their working life (46 years at £100 per month), they could end up losing almost £170,000 from their pot with a 1 per cent charge, and over £230,000 with a 1.5 per cent charge.
o This also means that the same individual could end up having considerably more money in their pot with a lower charge – an additional £66,000 at retirement with a 1 per cent charge, and an extra £100,000 with a 0.75 per cent charge, compared to a 1.5 per cent charge.
· A cap on pension charges will significantly reduce the costs for savers. The Department for Work and Pension consultation on pension charge will now ask for the industry and the public’s view on how best to design a cap that protects savings.
· Increasing transparency in the pension sector. It is crucial that small and medium sized businesses, who choose their employee’s pension scheme, are able to make an informed choice. The Government does not want to increase the burden on businesses, so is keen to design a series of transparency measures that will make it easier for employers to compare schemes – securing the best outcomes for savers. That is why the consultation will also explore the best options to increase transparency for employers.