The U.K. Treasury will examine the case for capping the fees that retirement funds are allowed to charge participants in an effort to prevent exploitation of a new auto-enrollment system.
While falling prices have meant that the average charge on a fund started in 2012 was 0.51%, the Office of Fair Trading estimates there are more than 186,000 retirement funds, containing £2.7 billion ($4.3 billion) of assets, that are paying fees of more than 1%.
“People need to know they are getting value for money when they save into a (retirement plan) and not being ripped off by excessive charges,” Pensions Minister Steve Webb said in an e-mailed statement Wednesday. “We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75% per year.”
Mr. Webb told the BBC on Wednesday that the government will also look to promote consolidation among pension providers “to get scale and drive costs down.” Funds will also be banned from charging more when participants stop contributing because they move jobs.
Options under consideration include a cap at 1%, a cap at 0.75%, or a flexible cap allowing funds to go above 0.75% to 1% if they can justify it to a regulator.
Legal & General Group, the U.K.'s largest manager of pension assets, said the basic plan that employees receive automatically should cost no more than half a percent.
“All consumers deserve this level of value, whatever the size of firm they work for,” Adrian Boulding, pensions strategy director at Legal & General, said in a statement. “There are plenty of additional services that some people will find worth paying more for,” including wider investment choice and financial advice.
Mr. Webb suggested he'd like to see most retirement plans charging around 0.3%. “Most could deliver at the sort of costs we're talking about, but because there's very little competitive pressure in the market, they don't do so,” he told the BBC.
Starting in April 2015, every U.K. employee will be signed up for a retirement plan unless he or she opts out. According to the Treasury, this will mean up to 9 million people saving for retirement for the first time or increasing their savings, and an extra & pound;11 billion invested each year.