Some 6m-9m people will be forced to make new or increased pension savings because of the auto-enrolment scheme, increasing the focus on value for money in fund management.
“People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges,” said pensions minister Steve Webb.
Options include a cap of either 0.75 per cent or one per cent, with a third choice of a 0.75 per cent cap moving up to one per cent for employers who could give valid reasons for the increase to the Pensions Regulator.
The government said it also aims to increase transparency in the sector.
But PricewaterhouseCoopers pension partner Peter McDonald said the new plans do not go far enough.
“Introducing a cap on pension charges is a step forward but it is vital that 0.75 per cent is used as the maximum amount that can be charged, rather than the default option,” he said, adding that he welcomed the possibility of naming and shaming pension schemes that overcharge.
“Many schemes, particularly master trusts and those for larger employers, should be able to charge less due to economies of scale. Competition should also help drive down charges.”
While the average charge on new pension schemes set up in 2012 is around 0.51 per cent, the Office of Fair Trading (OFT) estimates more than 186,000 pension pots with £2.65bn in assets are subject to an annual charge of above one per cent.
For an employee working 46 years and saving £100 per month, a one per cent charge could knock almost £170,000 off the final total, while a 1.5 per cent charges would bring a loss of around £230,000.