Lord John McFall has hit back at criticisms that his proposal to cap pension charges at 1.5 per cent will stifle competition and undermine automatic enrolment.
On Monday the Workplace Retirement Income Commission, led by former Treasury select committee chairman McFall (pictured), urged the Government to impose a cap on charges before October 2012 to ensure people get “good value for money” from their pension.
McFall said the cap should match the existing limits for stakeholder pensions, which are 1.5 per cent a year for the first 10 years and 1 per cent a year thereafter.
Hargreaves Lansdown head of pensions research Tom McPhail said the policy would stifle product innovation and risked “strangling auto-enrolment at birth”.
Speaking to Money Marketing, McFall says : “When I was chairman of the Treasury select committee I heard similar arguments in relation to split-capital investment trusts and payment protection insurance, where we have ended up with scandals, so let’s look ahead for once.
“We received evidence which said if we don’t introduce a cap there is the risk of mis-selling. One said mis-selling is in the DNA of the industry, so you will end up having to clean up a situation in the future if something isn’t done now.
“Given that we are trying to install trust and confidence in the system, it seems logical to intervene before auto-enrolment starts.”