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Providers, businesses welcome 0.75% pension charges cap

Pensions experts and the wider business community have largely welcomed the Government's introduction of a 0.75% cap on workplace pensions charges. However, some reservations remain about its effectiveness.

Pensions minister Steve Webb confirmed the changes will come into effect in April 2015, giving employers and pensions companies time to implement and adapt to the changes.

The National Association of Pension Funds (NAPF) welcomed the news, but added that good quality schemes able to demonstrate the benefits of higher charges should not be punished.

NAPF chief executive Joanne Segars said: "We welcome the focus on value for money but caution that charge caps are just one aspect of good value in defined contribution schemes, along with appropriate default funds, good governance and clear communications.

"We do not think that the Government’s recommendation for provider-level independent governance committees goes far enough and risks not being aligned with the long-term interests of scheme members. We believe employer-level independent governance committees would work better for scheme members."

Hargreaves Lansdown head of pensions research Tony McPhail said the timescales were sensible, given the large amount of changes taking place in the pensions world this year.

"Given the additional requirements and costs now being placed on pension providers to give better guidance to their members at retirement, it makes sense not to set the charge cap any lower at this stage," McPhail said.

Lydia Fearn, investment consultant at Barclays Corporate and Employer Solutions, said the company supported any changes in pensions that presented value for savers. She pointed out some potential challenges this could bring in the future, especially around innovation in pension schemes.

"Auto-enrolment has increased the desire for new products and we hope that this charge cap will not discourage development of new ideas in the pensions market," she said.

Thomsons Online Benefits CEO Michael Whitfield questioned the Governments claims that the move would see £200 million move from the pensions industries to the pockets of savers.

"Unfortunately, the very value of capping the fees charged by pension providers at 0.75% is questionable," he said. "Setting aside the negative impact of inflation on any longer-term savings, there is the reality that the annual management charge of many pensions is in fact lower than 0.75% – bringing a danger that costs could actually be increased to the capped level."