Capping Pension Charges Like Capping Price of Baked Beans

Yesterday the pensions minister publicily stated his opposition to placing a cap on pension scheme charges. This is despite admitting that savers at smaller firms are likely to pay more for pensions than those working for larger employers.

Pensions minister Steve Webb likened introducing a cap on charges levied by pension providers on savings schemes to limiting the price 'of a can of baked beans', when speaking to a Work and Pensions Committee hearing.

His argument is that the competitive nature of the pensions industry would ensure charges are kept down, as millions of workers are automatically enrolled onto pension schemes for the first time over the next six years.

He stated:

Early on the signs on charges are very encouraging as you would expect. Those auto-enrolled early on are getting charges that 10 years ago people would have dreamed of.

NEST (the publicly-funded National Employment Savings Trust) is part of that with a charge equal to 0.5 per cent. And if people look beyond that then they will have someone else there to take their business.

If we introduce a cap of, say, 1 per cent, then someone comes along charging 0.99 per cent telling people "Steve Webb says this is the gold standard" without them realising there could be others charging half as much.

Why does the Government not set a cap on the price of baked beans? Because we do not need to. There is vibrant choice and the market will deliver value.