U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers
October 31, 2013 Leave a comment
U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers
The U.K. Treasury is to examine the case for capping the fees that pension funds are allowed to charge savers, in an effort to prevent exploitation of a new auto-enrollment system. Starting in April 2015, every employee will be signed up for a pension plan unless he or she opts out. According to the Treasury, this will mean as many as 9 million people saving for a pension for the first time or increasing their savings, and an extra 11 billion pounds ($18 billion) invested each year.While falling prices have meant that the average charge on a fund started in 2012 was 0.51 percent, the Office of Fair Trading estimates there are more than 186,000 plans, containing 2.7 billion pounds of assets, that are paying fees of more than 1 percent.
“People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges,” Pensions Minister Steve Webb said in an e-mailed statement today. “We are consulting on a cap on pension charges. A range of options will be on the table including an outright ban on all charges above 0.75 percent per year.”
The OFT concluded in an investigation Sept. 19 that fees are too high and not always transparent. The Association of British Insurers agreed to an immediate audit of older and higher-charging funds, estimated to contain around 30 billion pounds of savings.
Ed Miliband, the leader of the opposition Labour Party, pointed to pension fees last year as the next scandal in British public life after journalism and banking.
Academic research published by the Review of Financial Studies in 2009 found the average British mutual fund charged 2.21 percent of its clients’ assets annually, compared with 1.04 percent in the U.S. Opaque fee structures, which exclude trading charges that can double the cost of owning a fund, make it difficult for customers to compare products and hurt competition.
A pension fund charging 2 percent a year will reduce the value of the fund by 49 percent over a 20-year period due to compound interest, according to SCM Private, a fund management firm campaigning against high fees.
To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net
About bambooinnovator
Bamboo Innovator 