Insurers fear a £1bn blow from pensions cap as DWP insists saver benefit
Insurers face a £1bn hit from the new pension fund fee cap which comes in next year, Royal London claimed yesterday – five times above the £200m cost the government predicts over the coming decade.
However, the mutual is likely to make little headway complaining about the fees. The Department for Work and Pensions (DWP) is understood to view any revenues losses for insurers as direct gains for savers, furthering the goal to cut fees.
The cap of 0.75 per cent cap for all funds which are eligible for those saving under the auto-enrolment system comes in next year, under the plan announced by pensions minister Steve Webb.
Phil Loney, group chief executive of Royal London, said Webb’s announcement that pension providers’ total revenue would be reduced by £200m over a 10-year period was a “gross underestimate”.
He said: “The provisions for the pension charge cap that we have seen from pension providers during this reporting period suggests that this is a gross underestimate. We estimate that the total reduction in long term insurer income may well reach £1bn.
“This seems to me to be an unacceptable margin for error in the government’s understanding of the impact of its actions and the size of the impact is driving many insurers to introduce employer fee arrangements to mitigate against the impact of further reductions in the price cap.”
But the DWP insisted the cap is in the interests of savers.
“This is important as automatic enrolment will lead to around six to nine million people newly saving or saving more into a pension, generating an extra £11bn a year in pension savings” said a spokesperson from the department. “These people must be able to save for retirement with confidence.”