Labour would exclude transaction costs from a 0.75 per cent auto-enrolment pension charge cap if the party is elected to power in May next year, Money Marketing can reveal.
Labour set out its full pre-election pension policy agenda over the weekend, including plans to cap charges and force all schemes to refer members to an independent annuity broker at retirement.
Reports also surfaced suggesting Labour had committed to capping charges at 0.5 per cent by the end of the next Parliament.
However, speaking to Money Marketing Labour shadow pensions minister Gregg McClymont would only commit to capping the total expense ratio at 0.75 per cent, which would then be kept “under review” during the Parliament. This cap would not include transaction costs.
The 0.5 per cent charge cap would be part of a series of stringent quality standards Labour plans to introduce for schemes which want to be eligible to accept transfers of “stranded” pension pots.
McClymont says: “The Labour party thinks the way to bring charges down to 0.5 per cent is to use the billions of pounds trapped in stranded pots to create competition.
“So we say if you want to compete for these billions of pounds of savings, these are the criteria you must meet on quality and cost. On quality the criteria would be independent governance and on cost it would be a 0.5 per cent TER.
“So the carrot for providers to meet the 0.5 per cent cap is they can compete to manage billions of pounds of savings sitting in stranded pots.
“The charge cap would be 0.75 per cent and that would be under review.”
Both the 0.75 per cent and 0.5 per cent charge caps would apply over the lifetime a person is in a pension scheme, meaning the Government-backed Nest – which operates a two-tier charging structure – would be compliant. Nest’s dual charge means savers pay around 0.67 per cent as a reduction in yield over 10 years and 0.5 per cent over a 20 year period.
In addition, Labour wants to hand The Pensions Regulator a new power to force inefficient pension schemes to merge and bring in new rules so all pension providers have a fiduciary duty to put the interests of members first.