Pension charge cap delayed 'at least a year'
Legislation to cap charges on pensions could be delayed until at least next year, according to latest proposals by pensions minister Steve Webb.
The Department for Work and Pensions (DWP) had proposed "radical reforms" to pension charges in October 2013. It hoped to "help people save for the future" by capping fees on workplace pension schemes at 0.75%.
The Financial Times reports that the reforms will now be put off until 2015 at the earliest, and may not take place until the next parliament.
A government spokesperson said: "This is an important and complex consultation, which requires our proper consideration to ensure we get it right, and we will confirm a publication date in due course."
Sean McSweeney, auto enrolment specialist at Chase de Vere, says a delay will reflect badly on the pensions industry and the government. "This will enhance the perception of many people that pensions have excessive charges, which rip off members for the benefit of fat cap pension providers and advisers," he explains.
However, some additional time to consider the proposals could be positive, McSweeney says he has "serious concerns" that the proposed cap could be too low, which would be detrimental to employers and employees. It would mean they would have "less choice, inferior products and a lack of ongoing service".
Tom McPhail, head of pensions research at Hargreaves Lansdown, says he would welcome the delay.
"We would urge the government to address the more immediate and serious problem of helping pension investors retiring today to convert their pension savings into a retirement income as effectively as possible," says McPhail.
"Far more value is being lost from the pension system at the point of retirement than would be saved through the implementation of a charge cap," he adds.
McPhail points out that in the early years of pension saving the benefits of a price cap would be negligible; a 0.6% charge on £1,000 pension pot would save £2 against one with a 0.8% charge.
"We still support the concept of a cap at 1%, with many scheme charging significantly less that this. In the meantime it is the responsibility of the government, pensions industry and financial media to highlight where charges are excessive and take steps to address this,' adds McSweeney.
This article was written for our sister website Money Observer
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.