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Pension Charges Cap Proposed By MPs

Plans to cap pension scheme charges to help people save more towards retirement are to be brought forward, the Government has confirmed.

Under the proposals, a cap of 0.75 per cent of the funds under management could be placed on the charges of defined contribution workplace pension schemes – a move that could boost an individual’s pension pot by hundreds of thousands of pounds.

The government described it as a ‘crucial step’ in improving value for pension consumers following the introduction of auto-enrolment.

Up to nine million people are expected to open a pension as part of the automatic enrolment of eligible workers into a pension scheme, increasing the total amount saved into workplace pensions by around £11 billion per year.

Although the average charge on new pension schemes is around 0.51 per cent, the Office of Fair Trading estimates that there are over 186,000 pensions worth a total £2.65 billion that are subject to an annual charge of over one per cent.

Minister for pensions Steve Webb said “enough is enough” on charges. He continued: “People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges.”

The Government is seeking industry and public opinion into the proposed caps as part of a consultation which will run until 28 November.

Webb added: “I’m confident that we will make the system fairer for anyone being automatically enrolled into a workplace pension and will finally address the issue of charges which has been neglected for far too long.”

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