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Pension charges cap could hand savers £1bn boost


A cap on pension charges could hand savers a £1bn boost, according to one of the UK’s largest pension providers.

In the recent pension reforms, the government announced that management charges on workplace pension schemes would be capped at 0.75% a year.

These caps are set to take effect from April 2015, and it was originally claimed the changes would be worth £200m to savers. However, the amount of money that pension customers may actually save could be “monumentally higher”, according to estimates released by pension provider Royal London.

Phil Loney, chief executive of Royal London said: “We estimate the total reduction in long-term insurer income may well reach £1 billion.”

At the moment, pension companies charge an annual fee to savers for managing the money that has been saved into their schemes. Although some of these charges are relatively low, they can be more than 2% in some cases.

When rates are capped at 0.75%, the average saver would be paying less to pension companies for managing their money, meaning their savings will be able to grow more quickly.


Whilst this appears to be good news for savers, some experts have warned against the potential consequences of capping management fees.

Mr Loney was one of those who criticised the plans, as he said that many pension providers may simply charge employers supplementary fees, to offset the lost income from management fees that employees are currently paying.

These views were echoed by Tom McPhail, head of pensions at Hargreaves Lansdown, who warned that extra fees charged to employers could create a “money-go-round”. He said in this situation, extra charges on employers could be passed on to others in the form of lower pay rises for employees and smaller dividends for shareholders.

Mr McPhail continued to say that “if that happens there will be little overall benefit to the people the Government is trying to help.”
However, despite these warnings, the majority have praised the plans as being good for pension savers.

David Norman, founder of asset manager TCF Investment said: “The ordinary saver is entirely justified in thinking - hurrah, this serves the pensions industry right.

“If on average consumers lose less from their pots in charges, we will all be richer. After all, pensions were not designed to make profit for insurance companies but for savers in old age - at least, that’s how it should be.”

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