Pensions minister Steve Webb has joined industry voices in accusing Ed Miliband of attempting to “stir up cheap headlines” over charges at the expense of pension customers.
Last week, Miliband told reporters he was determined to tackle the “massive, massive issue” of high charges. He suggested certain funds were charging up to 4 per cent, compared to Nest’s 0.5 per cent equivalent charge, and floated the idea of a charge cap.
He highlighted the £10m Neptune UK Mid Cap fund, despite it returning 17 per cent over one year and 88 per cent over three years, for a historic total charge of 3.96 per cent.
In an interview with Money Marketing, Webb says: “The leader of the opposition referred to pension charges as being a ‘massive, massive’ problem. In 13 years of government Labour did not feel it was appropriate to cap charges at all and now suddenly they are saying we have a crisis on our hands.
“I do not think the use of lurid language to grab headlines was helpful. We do not perceive that lots of people are about to be auto-enrolled into bad value pension schemes, quite the contrary. We will be looking at charges very closely as auto-enrolment develops and as small firms begin auto-enrolling their employees but we are not going to stir up cheap headlines for the sake of it.”
Speaking to Money Marketing, Association of British Insurers director general Otto Thoreson says: “There is an enormous difference between products designed for young people in the workplace and products for someone who has built up significant assets and is willing to take some risks. This sort of rhetoric reinforces a perception of the industry which is 20 years out of date.”
In response to industry anger, Labour Shadow pensions minister Gregg McClymont says there are “plenty of examples” of schemes charging over 4 per cent. However, he was only able to cite a 2009 DWP survey which found five DC trust-based schemes, 2 per cent, had charges of between 4 and 6 per cent.
A factsheet published by the DWP this week says only 6 per cent of DC trust-based schemes now have charges over 1 per cent. The department could not provide a more detailed breakdown. A spokeswoman says: “All our research points to charges falling steadily.”
Webb also criticises Labour proposals to cut the earnings threshold for auto-enrolment from £8,105 to £5,035.
He says: “Imagine if the threshold was £5,500 and someone earned £5,600. They would be levied on the £100 above the threshold, phased in at 1 per cent – that is £1 a year, or 2p a week. Can you imagine the derision we would get if we were forcing firms to put 2p a week into their employees’ pensions? It is ridiculous.”
Almary Green Investments director Carl Lamb says: “Miliband clearly does not understand the industry.”