A pension charge cap looks like becoming a general election issue following news that Labour would look to introduce a 0.75 per cent limit with incentives to go lower if it gained power.
Labour says it would introduce a cap of 0.75 per cent if elected next May which would be reviewed over the five year Parliamentary term. The party will also dangle a carrot to providers by making anyone with a 0.5 per cent cap eligible to accept transfers from stranded pots.
Sensibly, transaction costs would be excluded and the cap would apply over the lifetime of the pension. This would ensure Nest, with its 0.5 per cent reduction in yield over a 20 year period, would fall under both limits.
The move is likely to put significant pressure on both of the Coalition Government partners who are currently grappling with their own proposal to cap charges.
Pension minister Steve Webb’s plan to introduce a charge cap of around 0.75 per cent this April has been delayed by at least one year.
Westminster whispers suggest the reforms may fail to be introduced before the general election with some disagreement between the Treasury and the Department for Work and Pensions over the size of the cap and whether certain charges, such as transaction costs, should be included.
If the measures do not reach the statute book by the election the LibDems are likely to include plans for a cap in their manifesto. It remains to be seen whether the Conservatives decide to do the same.
A number of dissenting Conservatives voices in the Treasury are understood to be unhappy with current charge cap plans but they may not want to be isolated as the only Party not advocating a cap on excessive pension costs.
Certain firms that are able to provide lower cost schemes to big employers with stable levels of staff turnover may not offer similar deals to smaller employers who have yet to begin their auto-enrolment staging.
Advisers are already reporting problems with providers cherry-picking business and a shortage of pension firms to choose from when looking to recommend schemes.
Labour’s contribution is an interesting move and more sensible than it was portrayed in weekend media reports. But politicians needs to take care that in pursuing such limits for political purposes they do not do more harm than good.