Minister looks at lowering cap on pension fees

A cap on pension fees could be lowered to stop millions of workers losing thousands of pounds in their retirement nest eggs, a minister said today.

Pensions minister Steve Webb said the cap, which may start at 0.75 per cent, could be “glided down” or even introduced next year at a lower level if strong arguments are made for a cut.

The Liberal Democrat minister has previously signalled that he would like to see fees of 0.3 per cent of pension assets for a lot of people.

Many pension providers are opposing a tough cap but Legal & General broke ranks and called for the Government to bring it in at 0.5 per cent rather than the expected 0.75 per cent.

The firm’s communications director John Godfrey said: “These look like tiny slivers of money but over 25 or 30 years of someone paying into a pension they add up to an awful lot.

“We’re talking about many thousands of pounds for a lot of ordinary savers and this is crucial, given that people are going to live longer and require a higher pension for a longer retirement.”

He stressed the cap should be “fair” and apply to existing pension contributors rather than just new ones.

About 1.7 million people are in old schemes paying higher fees than 0.5 per cent, he added, and if a cap at this level were introduced it would save them £4.3 billion.

A government consultation, ending today, is seeking views on three possible options: a one per cent cap on fees, a 0.75 per cent cap or a two-tier “comply or explain” cap — where providers can charge up to one per cent if they can explain to regulators why their scheme must charge more.

Mr Webb said talks were under way with the Treasury for a “hard look” at fees of up to 3.5 per cent being charged on annuities for people starting to claim their pension.

The Office of Fair Trading estimates that there are more than 186,000 pension pots with £2.65 billion worth of assets subject to an annual charge above one per cent.