Fees charged by UK pension providers may be capped at one percent or lower, new government proposals suggest.
The Treasury is currently deliberating on its plans to cap pension fees, which according to officials, could save Britons thousands of pounds in pension charges.
Some older schemes that were established over a decade ago have been known to charge upwards of two percent in management fees per year.
Recently, Pensions Minister Steve Webb revealed that the government would initiate a “full frontal assault” on the fees charged by pension schemes.
The Treasury will seek advice from industry professionals on three possible options: a 0.75 percent cap, a one percent cap, or a two-tiered cap, consisting of an original 0.75 percent cap that will rise to one percent if a pension provider is able to justify its higher charges to regulators.
A Treasury spokesperson recently stated that a final cap will likely end up between 0.75 percent and one percent.
However, the proposed cap will only apply to pensions with auto-enrollment.
Webb recently told BBC Radio 5 live that the pension fee cap move is only the beginning of a much more comprehensive review of pension charges.
Webb stated, “We do have powers to cap a much wider range of charges. The document today looks at banning something called active member discounts. That means when you leave a firm they jack your charges up. We don’t think this is right, so we will probably ban those.”
When asked about the potential of a cap below 0.75 percent, Webb replied by saying the cap shouldn’t be set so low that it discourages pension providers. He continued by saying the cap should be “at a level where there’s competition in the market.”
Since October of 2012, workplace pensions have been on the rise as workers have been automatically signing up to schemes, such as the government-funded National Employment Savings Trust scheme, unless they choose to opt-out.
By 2018, nine million more people are projected to join these “defined contribution” schemes.
The consumer group Which? has openly welcomed a plan for a cap on pension fees, but it has urged ministers to establish a cap below 0.75 percent.
Which? executive director Richard Lloyd said, “Even a fraction of a percent can have a significant impact on pension funds, and people need to be confident that their scheme is giving them the best value for the money.”