Pension charges capped, but a big test remains

The Government is aiming to let pensioners keep more of their money by reducing charges. Photo: John Stillwell /PA Wire

The pantomime villains of the pensions industry are rip-off charges and hidden costs. Millions who have never saved in a pension before are now being enrolled in workplace schemes. But there was a danger of high charges. So here is what's been announced this lunchtime:

Pensions Charges

  • there will be a 0.75 per cent cap on charges

  • sales commissions will be banned * ‘consultancy charges’ wont be allowed from individuals savings

Pensions Minister Steve Webb unveiled the changes earlier. Credit: Rui Vieira/PA Archive/Press Association Images

An individual earning £20,000 would save around £35,500 if they saved in a scheme with a 0.75 per cent charge compared to a 1 per cent charge, according to the government.

One leading expert told me there are still doubts about whether extra charges could creep in.

Specifically there are so-called "transaction costs" where stocks and shares are bought and sold within your pension and those are not included in this charge cap.

The big test here is whether it rebuilds trust in pensions where people at the moment remain suspicious that instead of going into a retirement pot their money ends up going into somebody else's pocket.