Government may cap management charges for private pensions

LONDON (Reuters) - Britain may cap management fees charged by the private pension funds into which millions of workers are being automatically enrolled, the government said on Wednesday. Over the next five years, all workers aged between 22 and state retirement age who earn at least 9,440 pounds a year will be enrolled into a private pension scheme selected by their employer, unless they are already in a scheme or opt out. Up to 9 million Britons - almost a third of the workforce - will be affected and about 11 billion pounds extra a year will be saved into workplace pensions. The average annual fee for these schemes is 0.51 percent of assets under management, but more than 150,000 people are in schemes where the fees exceed 1 percent, the government said. "Enough is enough on charges. People need to know they are getting value for money when they save into a pension and not being ripped off," pensions minister Steve Webb said in a statement announcing a consultation into the possible fee cap. Among the options are blanket fee caps of 0.75 percent or 1 percent, and allowing fees above 0.75 percent only when an employer seeks a special exemption, he said. Reducing an annual fee from 1.5 percent to 0.75 percent would give someone who saved 100 pounds a month for 46 years an extra 100,000 pounds at retirement, the government said. The Association of British Insurers reacted cautiously to the proposals, saying it was worried that a formal cap might encourage some pension funds to raise charges up to that level. "It is important that any cap doesn't have the effect of levelling charges up," said ABI director general Otto Thoresen, noting that Britain's Office of Fair Trading had already expressed concerns about this in a study arguing against a cap. Other experts expressed concern that the campaign for lower charges deflected attention from a push to improve the overall quality of pension provisions and may lead to a proliferation of "basic" products which failed to meet the needs of savers. "A charge cap only looks at what people are paying and not at what they are getting for their money ... the lower the charge cap is set, the more the government risks ensuring that only basic products could fit underneath it," Will Aitken, senior consultant at Towers Watson, said. "If investing in a broader range of asset classes is expected to improve outcomes at retirement, regulations should not prevent trustees from designing default funds that do this," he said. (Reporting by David Milliken, Chris Vellacott and Sinead Cruise; Editing by Louise Ireland)