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Pension charges cap plan delayed
Minister of State for Pensions says plans to place a cap on 'rip-off' pension charges have been put back for a year, until April 2015, to give firms more time to adjust
The Government has put plans to place any cap on "rip-off" pension charges back for a year to give firms more time to adjust.
Pensions Minister Steve Webb said in a written ministerial statement that the Government remains "strongly minded" to cap pension scheme charges, but any cap will not be introduced before April 2015.
Mr Webb previously promised a "full frontal assault" on pension fees and the Government unveiled plans last year to cap the the annual charge for managing a pension pot at around 0.75% to 1%.
Proposals for a crackdown were announced amid concerns that people are at risk of being placed into pensions with high fees which will eat away at their savings and wipe thousands of pounds off their eventual retirement income. A consultation paper, which received 166 responses, was launched, with an expected start date from this April.
Mr Webb said today: "Nothing in the response to our consultation has changed our view that action is needed to ensure people are not ripped off by excessive pension charges.
"Having listened to feedback from our consultation, we have decided that it would be only right and fair to give employers a minimum of 12 months' notice of the changes that we will announce.
"We remain committed to delivering value for money for pension savers by tackling high charges in workplace pension schemes."
More than 2.5 million people have now been automatically placed into workplace pension schemes as part of the Government's landmark initiative to encourage people to put more money away for their retirement as people live for longer.
So far, the scheme has been viewed as a success, with around nine in 10 workers staying in their pension rather than opting out.
But concerns have been raised that as smaller firms with less experience of pensions are brought into the reforms, they will be at a greater risk of placing workers into old and high-charging schemes. Charges in schemes set up before 2001 are around 26% higher than those set up since.
The Government has told firms that they should allow around a year to prepare for auto-enrolment. It is reviewing the responses it received to the consultation and it is expected to make a further announcement about its plans in due course.
Pensions provider Hargreaves Lansdown said 30,000 companies are due to automatically enrol their staff into a pension in 2014 and waiting a year will give employers " valuable breathing space".
Yvonne Braun, head of savings retirement and social care at the Association of British Insurers (ABI), said: "Millions more people are saving into a pension due to the early success of automatic enrolment.
"It is a sensible decision not to make changes now which would cause disruption at an operationally sensitive time with thousands of new employers setting up schemes and provider capacity already strained.
"Workplace pension charges are now at their lowest level ever, and the ABI's members will continue to focus their efforts on ensuring that auto-enrolled savers get value for money and transparent pensions."
Even adding a fraction of a percentage point to an annual charge can wipe tens of thousands of pounds off the eventual size of the pension someone will end up with.
According to previous Government calculations, someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.
A pension saver with a 0.75% annual charge on their pension pot could eventually end up £100,000 better off than if they had been charged a rate of 1.5%, the Government said.
Speculation that the Government was set to delay implementing any cap mounted last week, when the Financial Times reported that it would not come into place this year.
Ros Altmann, an independent pensions expert and a former Downing Street adviser, said last week that delaying the charge cap would be a "sensible decision".
She said: "April 2014 would have been too soon, as it would have effectively punished employers who selected their scheme in good time ahead of their 2014 staging date and required many to renegotiate their arrangements.
"Auto-enrolment is a huge headache for most firms and employers do need to prepare early."