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Labour eyes drawdown charge cap

Labour says a cap on charges levied on pension savings in drawdown funds may be needed to protect savers from “rip-off charges” after April.

In a consultation paper launched today, the Labour-backed Independent Review of Retirement Income asks whether drawdown products should be subject to a charge cap to protect savers.

The consultation, led by Pensions Institute director David Blake, aims to “evaluate the predictability and value for money of the lifelong retirement income” produced by defined contribution pension schemes.

It also asks whether “decumulation” default products should fall under the remit of the Independence Governance Committees set up by contract-based schemes or the same quality standards applied to accumulation funds by trust-based schemes.

Labour says once the Budget reforms come into effect “many savers will access part of their pension while keeping the rest invested in the stockmarket”.

There is a 0.75 per cent charges cap on the default funds of auto-enrolment schemes, but this does not cover drawdown products. Since the Budget announcement, sales of annuities have plummeted while drawdown has become more popular, with the trend expected to gather pace after April.

Shadow pensions minister Gregg McClymont says: “‘I welcome the announcement by David Blake’s Independent Review of Retirement Income that they are studying the case for a new charge cap on pension products offered to savers by their pension provider to replace annuities. 

“Labour is on the side of people who work hard, save and do the right thing and we will act to ensure savers are protected from rip-off fees and charges.”

However pensions experts have branded the cap “virtually impossible” to implement.

Hargreaves Lansdown head of pensions research Tom McPhail says: “Drawdown comes in a multitude of flavours, so trying to come up with an effective price cap mechanism would be virtually impossible.

He adds the FCA is still conducting its retirement income market study and that “it makes no sense to pre-empt the regulator’s exhaustive and thorough market analysis by simply slapping a price cap on now.”

MGM Advantage pensions technical director Andrew Tully also questioned the practicality of a cap and says the Government’s top priority should be to stop savers suffering huge tax charges once they have access to the new flexibilities after April.

Old Mutual Wealth retirement planning expert Adrian Walker said introducing a cap “may be feasible” for workplace schemes “depending on the demographics of that employer’s scheme”.

But he says for schemes open to individuals, “to create a default fund simply to move inside a charge cap there is a danger a lot of people could end up in an environment where the default is not appropriate for them.”

Walker adds it would be “very difficult” for Sipp providers in particular to create a default fund for all their clients.

The consultation closes on 20 February 2015.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I can see why they would go for this. After all, CAT standard products and Stakeholder Pensions were massively successful.

    The pensions and investment industry simply needs to refuse to co-operate next time and not launch any suitable products. If they can stand together the Government would be forced to back down.

    Labour should try to run the country properly first and worry about their love of micromanaging everyone else’s lives second. That’s assuming they are elected, of course. Thank the Lord for Ed Milliband.

  2. Yawn. Typical bluster with no facts to back up these ‘rip off’ charges claims.

    I love how they pull figures from the sky to make these claims – a bit like how Labour balance the books I suppose.

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