DWP confirms pension fee cap
The Government is going ahead with plans to install a pension fee cap of 0.75%.
An annual 0.75% cap is to be placed on all workplace auto-enrolment pension schemes from April 2015.
The Department for Work and Pensions (DWP) has published draft regulations to introduce the cap. Pension savers who put away a £30,000 pot with 0.75% in annual fees would rack up an additional £1,600 towards their pot when compared with a 1.5% annual fee, according to the Government. Bigger savers could stand to save tens of thousands of pounds with this cap.
However, savers who choose their own investment plan may be worse off.
Workplace pensions
Workplace pensions, also know as auto-enrolment pensions, were first launched a couple of years ago. The idea is that all employers in the UK are required to enrol their employees into a pension, which the employer, employee and the Government all contribute to. As we do not save enough for our retirement as a nation, workplace pensions are designed to give us all a nudge towards putting aside a little bit more.
Exactly how your pension pot is invested depends on the scheme that your employer signs up to. While the Government set up NEST as a workplace pension provider, other rivals have launched such as The People's Pension and NOW: Pensions. All will offer a default fund, as well as alternative funds that employ a slightly different investment strategy. For example, NEST runs an Ethical Fund, a Sharia Fund, a Higher Risk fund and a Lower Growth fund.
This proposed cap will only apply to default funds, so if you actually take a more hands-on approach to how your retirement fund is invested, you won't benefit.
Read Workplace pensions: what it means for you.
"Hidden and unfair" charges
The Government is also bringing forward regulations to ban "hidden and unfair charges" like consultancy fees as early as next year. Active member discounts, where someone no longer pays in to their pension but is charged higher management fees than those still paying in, and member-borne adviser commission, where members pay advisers' commission charges, will follow from April 2016.
More on pensions:
Pensioners failing to claim benefits they are entitled to
British pensions lag behind Denmark, Australia and Finland
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