Legal & General has warned failing to reduce the proposed auto-enrolment pension charge cap to 0.5 per cent could cost savers in legacy schemes over £4bn.
Last month, the Department for Work and Pensions revealed three options for capping charges on auto-enrolment default funds.
The DWP is consulting on a charge cap of 1 per cent, 0.75 per cent or a two-tier “comply or explain” cap.
It has proposed introducing the cap in April next year for all employers staging from April 2014 onwards, before extending it to employers who staged between October 2012 and March 2014 by April 2015.
Pensions minister Steve Webb has indicated he wants to impose a cap of 0.75 per cent. However, L&G says this is a “poor idea” and warns failure to set a stricter 0.5 per cent cap will reduce the value of 1.7 million savers’ pension pots by £4.3bn.
L&G Assurance Society chief executive John Pollock (pictured) says: “A pension charge cap at 0.75 per cent is a poor idea by the Government. Not only will it potentially cost legacy scheme pension savers £4.3bn in lost savings, it will also be ineffective in driving down pension charges for millions of savers.
“Legal & General is in favour of having a meaningful cap at 0.50 per cent, not only for new auto-enrolment schemes, but for legacy pension schemes as well.
“It is here in the legacy world that savers may be getting a poor deal, with fees at much higher levels.”