McFall: Govt must cap workplace pension fees at stakeholder levels

The government must impose stakeholder-style caps on charges for auto-enrolment pensions or risk complaints over mis-selling, according to a new report.

Pension schemes chosen for auto-enrolment should have annual management charges (AMCs) of no more than 1.5% per annum for the first ten years and 1% thereafter, the Workplace Retirement Income Commission (WRIC) said.

WRIC, led by former Treasury Select Committee chair Lord McFall, also claimed charging structures on pension schemes are unreasonably high and "too opaque", rendering saving ineffective.

"Too many people are stuck in a complex, costly and inefficient system that relegates the consumer's interest to second place," said McFall, pictured.

"People need to get more bang for their buck, or they are not going to bother with a pension."

However, Tom McPhail, head of pensions research at Hargreaves Lansdown, criticized the current "preoccupation" with pension charges.

"Low charges are a good thing but not to the exclusion of member engagement," he said.

"Individual engagement with the personal responsibility of saving for retirement is the next big pensions challenge. If charges are cut too low then this engagement could be jeopardised."

Elsewhere in its report, WRIC claimed current minimum pension contributions set by the government for auto-enrolment schemes "will not be sufficient for many people" and recommended increasing the contribution floor after 2017.

Under auto-enrolment, the minimum contribution to each pension scheme member's pot, including employer, employee and tax relief, is 8%.

Neil Carberry, director for employment at the Confederation of British Industry, said: "Increasing the minimum compulsory pension contribution in 2017 is not the right answer.

"Further increases in the minimum contribution would put employers and employees under even greater financial pressure and may drive people away from pension saving altogether."

To read the full report, click here.