Steve Webb Tightens 'Iron Grip' With 0.75% Workplace Pension Charge Cap

The UK government continues to transform the country's retirement landscape with plans to cap charges on workplace pensions at 0.75% of the funds being managed.

The Pensions Minister Steve Webb said the move will transfer £200m from providers' profits into the pockets of savers from April next year.

The announcement comes after the initial Department for Work and Pensions (DWP) consultation put forward three possible cap rates – 0.75%, 1% or a two-tier model.

"We are going to put charges in a vice and we will tighten the pressure year-after-year," Webb told MPs in the House of Commons.

The Liberal Democrat added: "Through the new measures, this government will be the first to get an iron grip on pension charges.

"Over the next ten years, the new charge cap will transfer £200m from the profits of the pensions industry to the pockets of savers.

"Pension savers have paid too much, for too long. It is time to put the saver first."

The policy will also see tough new rules to make sure that all of the hidden "transaction" costs in pension schemes are published, which Webb described as shining "sunlight into the dark recesses of the pensions industry".

Tom McPhail, head of pensions research, added: "The announcement addresses this issue and means that even if they can't afford a Lamborghini at retirement, at least pension investors won't be helping to pay for the fund managers' new sports cars.

"The charge cap will only apply to default funds at the outset. This is a sensible decision as it would be wrong to prevent investors from benefitting from specialist active management if they wish to do so."

The decision comes as the government continues to implement its auto-enrolment project, which will see millions of UK workers being enrolled into an occupational pension scheme between 2012 and 2017.

The news follows the Chancellor George Osborne unveiling radical pension reforms in his "makers, doers, savers" budget.