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Webb warns Government may cap pension charges

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.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Dermot Brannigan 30th June 2011 at 10:04 am

    Is this guy for real?

    “If we think schemes are charging too much, say 1.5% or more…”

    How much is NEST charging?

  2. This chump is the pensions MINISTER?

    When I was a young man I used to think that everyone in government had to be quite intelligent to have got where they are. How stupid was I then?

  3. Cost of everything, value of nothing 30th June 2011 at 10:44 am

    Hilarious that Tom McPhail of Hargreaves Lansdowne states “there is an excessive preocupation with charges” His company sets up their stall on the basis that initial and ongoing charges are the spawn of the devil and should be reduced at all costs.

  4. stephen rowland 30th June 2011 at 11:08 am

    Hargreaves Lansdown are hypocrites of the top order – as they ‘leech’ off of IFA’S BACKS!

    All clients usually do is pick IFA’S brains – & then go to them as they think it’s cheaper – so fine thing Tom Hargreaves de-crying the charges element! A BIT RICH COMING FROM HIM!

  5. No Patrick, you were not stupid, you were ignorant.

    There is nothing wrong with starting out ignorant.

    It is staying there when you should have moved on that is stupid.

  6. Green Eyed Monster 30th June 2011 at 11:20 am

    “We won’t stop our friend Hector loading additional costs onto the financial services community, but we will stop the financial services comunity passing these costs onto their clients through higher charges.”

  7. Will the government provide life offices with nice subsidies like NEST?

    How will there be competion if all the life offices are closing to new business due to being forced to introduce artificially low charges (stakeholder).

    It is rather ironic that NEST charging structure is rather like pre stakeholder plans that were so derided at the time stakeholder was introduced.

  8. I pay a 2.3% fund management charge on my pension fund. The return over the last 5 years is over 100% (not bad during the credit crunch).

    A “managed” fund with the same company only costs 0.8% but the return over the last 5 years has been around 30%.

    I am happy to pay a high charge for such a high return.

  9. Why is Steve Webb (Conservative) listening to the likes of Pitt-What’son former adviser to Tony Bliar and Broon and Lord Myners!

    Talk about vested interests!

  10. Public sector pension liabilities now exceed £1 TRILLION and escalating fast.

    25% of all Council Tax is funding local govt pensions.

    Yet once again the Government sees private sector pensions as the problem.

  11. He should ask people before he opines on this stuff. The RIY on NEST over a 20 year period is circa 0.4% but over 1 year is 2.7% ie for a 64 year old and over a 2 year period is 1.7% basis,

    So…. on this basis people should not be auto-enroled into NEST within 2 years of NRD.

    oh dear oh dear what a mess

  12. Simon Mansell 2nd July 2011 at 2:17 pm

    Steve Webb go sort out the public sector before you hit the private sector any harder! As you speak the teachers are going on strike which means that the private sector parents can’t work and pay tax to fund the gilt edged pensions the teachers enjoy

    1.5% costs and yet the government has only made minor proposals regarding public sector schemes.

    At the same time, they have increased regulations, taxation (Browns pension raid), compliance and the imposition of accounting standards on the private sector. Stakeholder removed the distribution costs from pensions and surprise surprise this resulted in the removal of distribution. Misselling reviews and retrospective compliance means that quite frankly it’s just not worth the hassle of working in this sector and as a result there has been a massive movement away of pension sales AND YET STILL THE PUBLIC SECTOR ENJOY THE BEST PENSIONS IN THE UK.

    Meanwhile in a new study*, published by the IEA, the leading expert on public sector pension deficits, the burden of future public sector pensions at £1.025 trillion – this estimate is nearly twice as great as the government’s own estimates and approximately equal to one year’s national income.

    The IEA says that when calculated correctly, the cost of providing pensions for public sector workers varies from 35% of salary for male teachers to 72% of salary for policewomen. Of course this costs is passed onto the private sector via taxation and public sector employers such as local education authorities, police authorities and so on are charged much less than this.

    Governance in public sector schemes (what is and is not allowed) is also very weak. For example, 39% of local government employees and 68% of fire service employees retire early through ill health. Actuaries Hymans Robertson, calculate some 26% per cent of council tax receipts now goes towards public sector pensions, and there’s every possibility this figure will rise over the next five years, as age-related costs continue to feed in.

    Steve Webb go sort out the public sector before you hit the private sector any harder – THERE IS NO FAT LEFT ON THE BONE.

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