Bath independent financial advice firm Chase de Vere today warned of ‘unintended consequences’ behind the Government’s plan, announced this morning, to cap management fees charged by pension providers.
The Treasury is consulting on limiting fees to between 0.75% and 1%, claiming the move could save tens of thousands of pounds for many people. Pensions minister Steve Webb said the Government would launch a ‘full frontal assault’ on pension fees, arguing that some older schemes charge up to 2.3% a year. 
Chase de Vere’s auto enrolment specialist Sean McSweeney said his firm supported the proposed auto enrolment pension charge cap – which it would prefer at 1% – saying: “We agree that too many company pension schemes offer poor value to employees and steps should be taken to address this.”
But he added: “We must ensure that any cap, while reducing costs for employees, doesn’t disadvantage them significantly in other ways.
“If a cap is imposed then product providers will need to put aside additional capital reserves. There is a real danger that this could lead to some providers pulling out of the market or offering a reduced level of service.”
He said providers were already being very selective about the schemes they accept and would become even more so as smaller companies reach their staging dates on auto enrolment.
“Similarly, auto enrolment is already facing capacity issues with far more companies due to reach their staging date than there is capacity for traditional product providers to accept new schemes,” he said.
“So, while charges are clearly an important consideration, there is a danger that setting a cap too low could lead to employees being faced with less choice, inferior products and a lack of ongoing service.”
While some providers, notably finance giant Legal & General, had called for a cap lower than 0.75%, Mr McSweeney said it was important to note that they will only accept business which is profitable for them at a 0.5% charge.
“This means that they only offer auto enrolment schemes to companies which they consider to be ‘high quality’ and profitable at that level, all others are turned away.
“To negate the risks of employee detriment we would therefore support a cap being set at 1% –although would expect many schemes to charge significantly less – with a review in the future to see if it should be altered.”
