The Treasury has pledged to review the 1.5 per cent price cap after three years to ensure that product providers are using the rise to pay for advice.
Speaking at a Treasury select committee meeting on Monday, Treasury financial secretary Ruth Kelly told MPs that providers should be using the 0.5 per cent increase in the price cap to provide advice.
Kelly said the reason the price cap was raised was because providers did not take advantage of the possibility of charging for advice under the old regime, saying they argued very strongly that they needed the increase to be able to advise consumers on low to middle incomes.
She said if providers are not offering advice, she does not expect them to charge over 1 per cent, revealing that the Treasury will be reviewing the situation after three years to make sure firms are charging for advice and not just taking advantage of the increase.
Kelly said: “We have said that we will review the 1.5 per cent after three years to make sure firms are charging for advice and not taking adv-antage of the increase. If providers are not offering advice, we would not expect them to charge over 1 per cent – 1.5 per cent is the very maximum we expect to see and we still expect to see some providers charge very much less than that.”
Royal London head of corporate communications Alas-dair Buchanan says: “Providers will not want to increase the amount they pay to distrib-utors because of the capital constraints they are facing.”