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L&G warns 0.75% pension charge cap will cost savers £4.3bn

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.”

Click here for all our news and views about the Government’s charge cap proposals 


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

  1. A cap is a good thing. Charges can mount up and have a significant impact on your retirement savings. (You can use something like this if you don´t believe me: )

    I hope that all chages are combined when the cap applies: fund charges, plaform fees, advice fees, taxes, ancilliary charges… Similar rules (not a cap, but more complete disclosure of the role of alternative passive investment options) has led to huge changes in the US – with money streaming into passive investment opportunities… and the little guy getting a better deal.

  2. Normally I am all for industry players putting their views forward, but sometimes I wish they would keep their thoughts to themselves. Legal & General really ought to spend more time developing their own products and service propositions instead of putting forward self-serving rubbish like this. If a 0.5% cap is introduced I do hope that Legal & General and Which? supply free of charge all of the necessary employer consultation and then pay for all of the man-hours and effort that will be required to reinstall all of the auto-enrolment schemes that would fall foul of a retrospectively applied 0.5% cap. Not only would it bring auto-enrolment to a grinding halt, but it would also result in a race to the bottom in terms of quality of offering. Have a rethink Legal & General, you have already helped ensure that Stakeholder legislation failed miserably, do not make things worse by supporting this utterly naïve capping level of 0.5%!!

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