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.
In October, 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.
Pensions minister Steve Webb has indicated he wants to impose a cap of 0.75 per cent. But L&G 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 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.
“L&G is in favour of having a meaningful cap at 0.5 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.”
Keyte Financial Planners director Robin Keyte says: “This is all about promoting better consumer outcomes and I think it is great that a company of L&G’s stature is coming out and saying something like this.
“If the cap is set at 0.5 per cent I am not going to throw my arms up in the air because it would help ensure consumers get a good deal.”