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16 Sep 2013

Pensions Schemes Likely To See Charges Capped

The Office of Fair Trading (OFT) is expected to publish its report on its probe into workplace pension schemes any moment now, but many industry representatives think they know what the report will reveal.

Many experts believe that the government will take a firmer stance on charges that pension providers collect from savers. This has already been signalled by the fact that many of Britain´s major providers have been cutting or capping costs lately, the Daily Telegraph reported.

In May, pension minister Steve Webb stated that imposing a cap on charges was one of the moves that the government considered - for default funds in defined contribution pension schemes, in particular - where savers are not making active choices on the way their money is invested. The government was concerned that, since it was making people join workplace pension schemes under the automatic enrolment program, workers need to be sure their savings are protected against unnecessary charges.

According to Money Marketing website, increased competition in the pension scheme market has contributed to a drop in administrative costs and investment management charges, pushing them down to an average of 0.57%. However, consultancy firm Deloitte calculated that changes to the way workplace pensions operate to make them more efficient could allow these charges to drop further to 0.38%.

Introducing a cap would actually reduce competition, as all providers would be charging a fairly equal amount of money, just below the cap, the website pointed out.

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