Savers paying into a pension could save up to £100,000 once a new cap on fees is introduced in April.
Charges for those automatically enrolled in a workplace pension will be capped at 0.75 per cent a year compared to current average annual charges of 1.5 per cent used to cover the costs associated with managing the pension funds.
It’s a saving which could amount to £100,000 over a working lifetime for young workers the Department of Work and Pensions (DWP) estimates, and thousands of pounds of savings for those closer to retirement.
Pensions minister Steve Webb said: “Over 5 million people have now been automatically enrolled into a workplace pension and by 2018, millions more will be saving for the first time, or saving more. This is why we are building a pensions system that these workers can save into with confidence – and not see their money disappear in opaque charging structures.”
“There is an understandable buzz around what April will bring for those retiring now, with the unprecedented pension freedoms coming in,” he added, “But these reforms show we are also determined to help the pensioners of tomorrow – people working hard and saving hard for their families’ future."
The Financial Conduct Authority (FCA) has also laid out its final plans for rules on independent governance committees overseeing workplace pensions.
Further changes introduced from April will mean businesses operating workplace personal pension schemes will be required to create a committee representing the interests of pension scheme members and acting independently of the company.
Christopher Woolard, the FCA’s director of strategy and competition, said: “Pensions are complex and employees and ex-employees are often unlikely to know whether or not their workplace scheme delivers value for them. It is important that schemes are operating in the interests of members and IGCs are a significant step in a package of measures aimed at improving the value of workplace pensions.”
The new cap will transfer £200m from the pension industry to savers according to the DWP and pension firm bosses have warned the cap could have unintended consequences for the market. Others have estimated the cap could cost the industry up to £1bn.