The United Kingdom government has proposed putting a cap on workplace pension plan charges.
“The government believes that enough is enough on charges,” says Minister for Pensions Steve Webb. “People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges.”
In a consultation paper, the government proposes three options for DC plans: a 0.75% cap, a 1% cap, or a two-tier ‘comply or explain’ cap where there’s a standard cap of 0.75% and the availability of a 1% cap if employers explain to the Pensions Regulator why their plans have to charge more than 0.75%.
While the average charge on new pension plans is around 0.51%, the Office of Fair Trading estimates there are more than 186,000 people in DC plans who are being charged more than 1% annually.
Alongside the pension cap, the government also wants to increase transparency in the sector. It proposes mandating disclosure to members, standardizing disclosure to employers, and disclosing transaction costs.
“The industry is committed to making pension reform a success and of course will engage fully with this consultation,” says Otto Thoresen, director general of the Association of British Insurers.