The Government says it may consider capping pension charges if market competition fails to drive down costs.
Speaking at a breakout session at the ABI biennial conference last week, pensions minister Steve Webb said there remains an “open question” about whether competition will drive down pension charges.
He said: “If we think schemes are charging people too much, say, 1.5 per cent or more and people are not getting value for money, we have the power to set a cap.
“There is an open question about the extent to which the market will fix this problem for us but we are not just looking at the averages, we are looking at extremes. We will be monitoring what is happening in the market. Charges are an important issue so it is something we will be keeping a close eye on.”
A controversial report from Hermes Focus Asset Management chairman David Pitt-Watson last December claimed 38 per cent of retirement income is lost to charges.
Yellowtail Financial Planning managing director Dennis Hall says: “I do not think the Government should be imposing blanket caps because they do not know the full story. There are isolated cases where a scheme might need to impose higher charges, for example, if it is winding down.
“The moment you start restricting charges, you move away from the private sector into a pseudo-public sector where people can start to dictate what you are doing.”
Towers of Taunton director Robin Keyte says: “There may be people who want to build in higher charges after automatic enrolment. If that happened, it would be understandable for the Government to intervene, as they did with the stakeholder cap.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “There is an excessive preoccupation with charges. Charges, in determining the outcomes people enjoy from their pensions, are a relatively insignificant factor.”