LONDON (Reuters) - Britons with private pensions that are part of an industry benchmark could see their final savings boosted by up to 8 percent after the amount of fees and charges levied on their pension pots was capped at 0.75 percent a year.
The Pension Quality Mark (PQM), which has over 170 pension schemes covering more than 300,000 members, has lowered its cap on annual charges and fees from 1 percent of the total value of an individuals’ pension pot, the National Association of Pension Funds (NAPF) said on Monday.
Private pension firms have been accused of failing to disclose some of the costs they levy on customers’ investment funds, leaving people unaware that their pension savings were being eroded by the fees.
The average annual management charge on a workplace pension scheme is 0.77 percent, according to the Association of British Insurers (ABI).
So-called defined contribution pension schemes, which offer less certainty for employees than schemes linked to their salaries, have become the norm for many workers as UK employers seek to reduce their exposure to costly salary-related schemes.
The government-backed “auto-enrolment” initiative is also expected to add up to 11 million extra people into workplace pension schemes - the vast majority being defined contribution plans.
Government and industry watchdogs have been pressing for greater transparency of pension charges after the auto-enrolment scheme started in October 2012.
In January, the ABI said it would force its pension and insurance company members that run some of the UK’s biggest pension schemes to reveal fees and charges taken from employees’ retirement pots.
The size of an employee’s pension under a defined contribution scheme is determined by the size of contributions made into the pension, the performance of the investments in the scheme and the cost of an annuity at retirement.
The PQM was launched by the NAPF in September 2009, with pension schemes such as the BBC, L‘Oreal and PepsiCo all signed up to the benchmark.
Pension contributions under PQM must equal at least 10 percent of an employee’s salary, with a minimum employer contribution of 6 percent of salary.
The NAPF said the change would come into force in April 2013.
Reporting by Sarah Mortimer; Editing by Mark Potter