'Rip Off' Pension Fees To Be Capped At 0.75%
Pension pots are set for a cash injection of almost £200m after the Government confirmed a cap to curb excessive fees.
Ministers announced plans to introduce a limit on charges ahead of the landmark reforms to pensions confirmed in the Budget.
Following a consultation, the pensions minister Steve Webb said the cap on fees would be set at 0.75% rather than 1% - as had originally been considered.
However, the cap will not come into force until April 2015 to give firms time to adjust to the change.
The action was ordered over concerns that people are at risk of being placed into pensions with high fees that eat away at their savings.
Some older schemes dating back to the turn of the century were found to be charging participants 25% more in fees than those on more modern deals.
Mr Webb said that over the next decade, the new charge cap will transfer an estimated £195m out of the profits of the pensions industry and into the pockets of retirement savers.
It meant that a person on a £20,000 salary would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% charge for managing their pension savings compared with one which had a 1% charge.
The consumer group Which? called for the cap on fees to be kept under review.
It claimed that paying a 0.75% annual charge instead of 0.5% could cost a person saving throughout their working life £40,000.
Under the Government's plans, three different types of pension charge will also be banned altogether, including those for people not actively contributing to their pension scheme.
Mr Webb, who promised a "full frontal assault" on schemes giving poor value, also said there will be new rules to make sure that hidden costs in pension schemes are published so they could be considered for inclusion in the charge cap.
It was announced as the first phase of the Budget's pension flexibility reforms came into force.
They allow the size of the total pension savings that can be drawn down entirely and taken as a lump sum to be raised to £30,000 in the coming financial year.
The size of a small pot that can be taken as a lump sum, regardless of total pension wealth, has been increased five-fold to £10,000.
The shake-up is expected to lead to fewer people using their pension savings to buy an annuity when they retire, which gives them a fixed income, usually for life.
Controversy over annuities has been growing amid tumbling rates in recent years and fears that people are not getting the best deal they could by shopping around.