Britain may cap management charges for private pensions

Reuters

LONDON, Oct 30 (Reuters) - Britain may cap management feescharged by the private pension funds into which millions ofworkers are being automatically enrolled, the government said onWednesday.

Over the next five years, all workers aged between 22 andstate retirement age who earn at least 9,440 pounds ($15,200) ayear will be enrolled into a private pension scheme selected bytheir employer, unless they are already in a scheme or opt out.

Up to 9 million Britons - almost a third of the workforce -will be affected and about 11 billion pounds extra a year willbe saved into workplace pensions.

The average annual fee for these schemes is 0.51 percent ofassets under management, but more than 150,000 people are inschemes where the fees exceed 1 percent, the government said.

"Enough is enough on charges. People need to know they aregetting value for money when they save into a pension and notbeing ripped off," pensions minister Steve Webb said in astatement announcing a consultation into the possible fee cap.

Among the options are blanket fee caps of 0.75 percent or 1percent, and allowing fees above 0.75 percent only when anemployer seeks a special exemption, he said.

Reducing an annual fee from 1.5 percent to 0.75 percentwould give someone who saved 100 pounds a month for 46 years anextra 100,000 pounds at retirement, the government said.

The Association of British Insurers reacted cautiously tothe proposals, saying it was worried that a formal cap mightencourage some pension funds to raise charges up to that level.

"It is important that any cap doesn't have the effect oflevelling charges up," said ABI director general Otto Thoresen,noting that Britain's Office of Fair Trading had alreadyexpressed concerns about this in a study arguing against a cap.

Other experts expressed concern that the campaign for lowercharges deflected attention from a push to improve the overallquality of pension provisions and may lead to a proliferation of"basic" products which failed to meet the needs of savers.

"A charge cap only looks at what people are paying and notat what they are getting for their money ... the lower thecharge cap is set, the more the government risks ensuring thatonly basic products could fit underneath it," Will Aitken,senior consultant at Towers Watson, said.

"If investing in a broader range of asset classes isexpected to improve outcomes at retirement, regulations shouldnot prevent trustees from designing default funds that do this,"he said.

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