Workplace Pension Charge Capped

Workplace Pension Charge Capped.

Pensions Minister, Steve Webb, has confirmed that the Government is set to cap the maximum charges on employer based pension schemes from between 0.75% and 1.00% per year.

The Treasury is has been tasked to consult on the proposal amid mounting pressure that charges on pensions schemes are dissuading people from saving in pensions.

Comment

A load of tripe.

For a fee based pension scheme, we can already secure maximum yearly charges as low as 0.4% per year.  It is insurers, fund managers and financial advisers taking additional fees that mount up the charges on pensions schemes.  Whilst, financial advisers are not allowed to take a fee from a work based pension scheme, managers still can.

The 1% cap was originally introduced for Stakeholder pensions when they started back in 2001.  This was subsequently increased to 1.5% per year as financial advisers and pension companies broadly shunned then as people would not pay a fee for advice and there was just not enough commission payable from them due to the low charges to warrant many pension firms and financial advisers promoting them.

So after 12 years, we are back to square one. 

We have repeatedly stated that people are not fools.  Pension schemes are inflexible, you cannot access funds before age 55 and when you can only some of your pension can be drawn as a lump sum and the balance must then be taken in some form pension income, be it an annuity or pension drawdown.  Pensions schemes are much more accessible in the USA, Canada and Australia, yet successive UK Governments appear to miss this and focus on tax relief and restricting tax relief for higher earners/pension contributors.  Annuity rates are also very low at present, again discouraging people from saving.

Flexibility first, tax breaks and charges second please.  The pension savings gap will not be closed without greater flexibility.  Just introducing compulsory contributions and capping charges will not mean people save more.