Doubling the stakeholder charge cap to 2 per cent would exacerbate the pension crisis as people would turn to savings accounts rather than stakeholder pensions, according to research from the Consumers' Association.
The CA's research – published a month before the Treasury announces its decision on whether it will vary the price cap – shows that 72 per cent of consumers would choose to invest in a savings account rather than a stakeholder pension with a 2 per cent charge.
Eighty-three per cent of respondents said an increase to 2 per cent would make a “big difference” to whether they took out a stakeholder and 79 per cent said the same if the cap was raised to 1.5 per cent.
But life offices say the Government's three-year experiment with selling cut-price pensions has failed, with sales of individual pensions almost grinding to a halt.
Some life offices argue that it is the shape of the charge that is at fault and are calling for an initial charge and ann-ual management charge model instead of a flat rate.
CA principal policy adviser Mick McAteer says: “The bottom line is that the Government's pension policy is in ruins but reversing the price cap would be misguided because it would price more people out of the market, reduce incentives to invest in a pension and risk massive misselling.”
Norwich Union head of pensions development Iain Oliver says: “What the Consumers' Association is trying to say is that people will buy pensions because they are cheap. This was the view of the Government in 2001 before a three-year experiment that shows the opposite is true.”