Pensions Minister Steve Webb has turned the screws even more on pension companies with new measures to restrict charges.
Acting alongside Chancellor George Osborne, whose Budget 2014 upheaval allowing defined contribution pension savers unrestricted access to their cash from the age of 55, Webb has
delivered another hammer by ending rip-off charges.
In both moves, the government has clearly shown negotiating with pension firms to give a fairer service to retirement savers was moving too slowly.
Instead, they have battered the firms on the stock market by changing the rules without warning to move billions of pounds worth of revenue out of pensions and into the pockets of savers.
The government and pension firms have negotiated terms over annuities and pension charges through the trade body The Association of British Insurers for some months.
Lucrative revenue streams
The ABI seemed reluctant to give up lucrative revenue streams for member companies, so the government offered them the chance to make changes – or face legislative action if the changes were too slow or not far-reaching enough.
Now, Webb has announced that a 0.75% cap on charges will apply to all qualifying funds from April 2015.
He has also banned a number of other charges.
Over the next decade, Webb reckons £195 million of pension contributions will convert into pension savings rather than going in to pension firms and financial advisers as unnecessary costs and charges.
Someone earning £20,000 would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% charge compared to a 1% charge.
Webb has also detailed caps for schemes with combination charge structures.
Banned pension charges
Three pension charges will be banned:
- Commissions to advisers deducted from pension contributions
- Higher charges for pension members no longer work for a company but have left their savings behind
- Employers charging staff ‘consultancy charges’ relating to their pensions
The government is also demanding all pension firms provide details of their charging structures so consideration can be given to capping them as well.
Steve Webb said: “Through the new measures, this government will be the first to get an iron grip on pension charges. We are going to put charges in a vice; and we will tighten the pressure, year-after-year.
“Pension savers have paid too much, for too long. It is time to put the saver first. The measures we are announcing today will make sure that we are seen as world leaders in transparency and value for money.”