Lord John McFall’s pensions commission has called on the Government to cap scheme charges at 1.5 per cent as part of wide-ranging proposals aimed at reinvigorating occupational saving.
In its final report the Workplace Retirement Income Commission, led by former Treasury selected committee chairman McFall (pictured), says pension charges need to be capped to ensure people get “good value for money” out of automatic enrolment.
The commission says the cap should match the existing limits for stakeholder pensions, which are 1.5 per cent a year for the first 10 years and one per cent a year thereafter.
McFall says: “There is no point in bringing people into pensions that will erode their savings through high fees.
“The Government should set a clear ceiling on the charges that will be allowed under auto-enrolment.”
Last month pensions minister Steve Webb warned the Government could cap charges if it thinks people are not getting value for money.
Hargreaves Lansdown head of pensions research Tom McPhail says: “The WRIC suggestion that pension charges should be subject to a Government cap is misguided and counter-productive. Charges are the single least important factor in determining pension pay-outs.
“What’s more, a cap on charges is likely to stifle innovation and most importantly it would inhibit member engagement. Stakeholder pensions were a disaster; similarly there has been very little industry appetite for providing CTFs because of the product restrictions.
“A pensions price cap now would risk strangling auto-enrolment at birth.”
McFall also urges policymakers to investigate how the auto-enrolment contribution floor can be increased from 8 per cent post-2017.
The former Labour MP says annuities are “sorely in need of a shake-up” and calls on the industry to develop more flexible products.
He says “serious consideration” should be given to requiring schemes and providers to direct members and consumers to an annuity comparison website as part of proposals to increase shopping around at retirement.
In addition, McFall calls for a permanent, independent pensions commission to be established to “take the politics out of pensions”.
He says: “Pensions are a long-term issue and the public is tired of short-term tinkering.
“We need a permanent, independent commission to take the politics out of pensions and restore some faith in the future.”