In the words of Mr. Webb, todays announcement is part of a “full frontal assault” on fees and charges that can consume as much as half a worker’s retirement savings. The cap could be set as low as 0.75 per cent of the funds being managed, a lower level than previously proposed.
The move is timely. Across the developed world, there is rising concern for how future pensions needs can be met. Changing demographics are presenting a big challenge, falling birth rates and rising life expectancy along with lower uptake of pensions means that political leaders are beginning to consider more drastic measures.
“Clearly the UK authorities have identified a soft underbelly of the pensions industry; fees. With excessive fees eating away at pension fund values, the UK authorities know that the fundamental reasons to contribute to pensions are being destroyed by greedy administrators” said Mr. Frank Conway, Founder of the Irish Financial Review.
Some UK pension experts estimate that fees can cut funds by as much as half over a working career.
“In some extreme cases, pension funds have become little more than cash cows for pension managers that under manage and overcharge” said Mr. Conway.
Several Irish Government Ministers have variously voiced concern about future pension needs that may not be met based on todays participation rates. However, the Government here recently decided to not drop a controversial tax on private pension accounts but instead increase the annual tax from .6% to .75%.
Across in the UK, ministers previously had said they would consult on whether to impose a cap on fees. However, Mr Webb will today confirm that the decision to cap fees has now been taken, meaning that only the level remains to be set.
A consultation exercise will ask for views on a limit set at 1 per cent or 0.75 per cent.
With the UK moving to fees regulation, its high time that the pensions industry in Ireland is subjected to the same regime.