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Steve Webb: Tackling rip-offs, standing up for savers

March 27, 2014 1:17 PM
Originally published by UK Liberal Democrats

Earlier today, I had the pleasure of announcing in the House of Commons a raft of new measures designed to make sure that when people save for a pension they get value for money.

One of the Coalition's most successful policies, for which I have had lead responsibility, is the introduction of 'automatic enrolment' into workplace pensions. Starting with the biggest firms in October 2012, and reaching the smallest ones by 2017, employers now have a legal duty to put their workers in a pension scheme and to make an employer contribution which is topped up by an employee contribution plus tax relief. Workers are free to opt out at this point, but a staggering 90% are choosing to stay enrolled. Since the policy started we have got an extra three million workers into pensions, and by the time it is fully rolled out we could be up to getting on for nine million.

One important gap is that there is virtually no regulation of the quality of these schemes. Although big employers have negotiated effectively for their workers (and have buying power when talking to pension providers) we cannot be certain that people who work for small firms will necessarily get value for money. Labour failed to legislate at all on this issue, but today we have announced a tough clampdown on 'rip-off' pension charges.

Steve Webb

In particular:

  • From April 2015, no-one in an automatic enrolment pension scheme (and whose money is in the 'default' investment fund) will face charges of above 0.75% per year;
  • A whole raft of types of charge will be banned altogether over the next couple of years, including charges for sales commission and the hidden charges that are increased when people move firms and leave money behind in their previous pension scheme;
  • We will shine a bright light on the murky recesses of the pensions industry with new legal duties on 'transparency' of charges, especially the often hidden 'transactions costs' which arise when your money is invested by someone else;
  • We will look again in 2017 at whether the measure of charges needs to be broadened and whether the cap needs to be lowered further;
  • We are undertaking a review of the oldest 'legacy' schemes which have the highest charges and will take further action on these as appropriate once we know the full details of how they are working;
  • We will also make sure that in all types of pension scheme there is someone acting in the member's interest. This could be a trustee or it could be a new 'independent governance committee' to oversee the schemes run by insurance companies.

As a Liberal Democrat working for a fair society, I am proud to be taking forward measures which will divert around £200 million from the excess profits of the financial services industry to the pockets of savers. Coming on top of our exciting reforms to the state pension system and the bold freedoms announced last week in the Budget, I believe that pensions reform will prove to be one of the lasting positive legacies of this government.