Ban sought over pension charges

Elderly person with walking stick"Damaging" pension charges which can wipe huge chunks off people's retirement pots and risk undermining confidence in saving must be banned, MPs have urged.

The Work and Pensions Committee also wants to see one single regulator taking charge of workplace pensions, to strengthen protections as millions of workers enter into retirement saving for the first time.

Up to nine million people will be newly saving or saving more as a result of the Government's landmark efforts to tackle the pension savings crisis by automatically placing people into workplace pensions.

But the committee warned that the majority of these people would be placed in schemes where they bore all of the investment risk - and many would be ill-equipped to deal with the "complex and confusing world of pension saving".

It called for a ban on a practice in the current system, which allows employers to offload the costs of financial advice given to them to help them choose and manage a pension scheme onto their employees, in the form of extra "consultancy" charges on workers' pension pots.

The report said that an example of how high these costs could be given by consumer group Which? included an initial charge to each scheme member of £600 over 12 months followed by an ongoing £60-a-year charge.

Which? said that if such practices happened every time someone switched jobs and enrolled into a new pension, they would see large amounts of money disappear.

The Government has said it would expect that a consultancy charge should only be applied where advice "leads to a tangible benefit for its members". But the provision of pensions advice to employers is unregulated and there is no clear guidance as to what is considered a "reasonable" charge, the report warned.

The report said that such charges have "the potential to cause serious consumer detriment and to damage confidence in pension saving and auto-enrolment".

The committee also wants to see an end to "active member discounts" - a practice whereby some schemes bring in higher charges for people who stop contributing to a pension pot, usually when they change jobs, but leave their fund in the scheme.
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