Life offices will not be able to increase their charges on existing 1 per cent stakeholder contracts after the price cap is raised next April.
The Government has also confirmed that the level of the stakeholder charge cap would be reviewed in three years time if the increase fails to have an impact on distribution to low-income groups.
Speaking at the ABI Saver Summit this week in London, Work and Pensions Secretary Alan Johnson said the Government has been forced to legislate after failing to get life offices to agree not to raise charges on 1 per cent contracts.
This means IFAs will not need to revisit clients it recommended stakeholder to on a 1 per cent charge basis.
In his strongest yet acknowledgement of the disincentive effect of means-testing on saving, Johnson admitted the link was undeniable but the alternative would leave too many pensioners in penury.
In a wide-ranging speech, Johnson confirmed auto-enrolment on defined-contribution schemes as a Government policy and said defined-benefit schemes collapsing before the pension protection fund comes into force will not be ruled out of compensation from the scheme.
Johnson says: “I would be crazy to say means’ testing does not act as a disincentive to save for some people but is it a bigger problem than poverty among today’s pensioners?” Pru head of development services Pam Aurbach has crossed the Atlantic to set up a Top Gun academy for advisers to keep intermediary business flying high