Rishi Sunak has been accused of chasing individuals’ life savings to fund infrastructure and other long-term investments after his proposals in the budget to remove the pension charge cap.
Since 2016, funds offered via defined contribution pension schemes have not been able to charge annual management fees of above 0.75%. This is to stop high charges eating away at the savings of millions of workers who have been auto enrolled in such schemes.
Sunak told the House of Commons “innovation comes from the imagination, drive and risk-taking of business”. “It’s why I’m announcing today that we will consult on further changes to the regulatory charge cap for pensions schemes unlocking institutional investment while protecting savers.”
‘Playing fast and loose with other people’s retirement money’
Interactive Investor head of pensions and savings Becky O’Connor accused the chancellor of chasing individuals’ savings pots to fund infrastructure rather than simply raising taxes.
O’Connor acknowledged the potential upside of higher returning products but said this could fail to materialise. Typical workplace pension scheme fees are currently around 0.4% to 0.5% raising questions about whether the cap really needs to be raised or whether it will just line the pockets of the asset management industry, she says.
“Pension savers will want visibility over what is happening under the bonnet if charges do rise. Otherwise this could look like playing fast and loose with other people’s retirement money.”
Money Saving Expert founder Martin Lewis tweeted his concern the proposals might result in fees going up across the board for funds offered via DC schemes.
Illiquid assets could produce higher returns for pension savers
But others were more optimistic about the chancellor’s proposals.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said “we know that cost is only one determinant of value”. Morrissey reckoned it would be difficult to invest in illiquid assets under the current charge cap.
“We await the full detail, but it will be interesting to see if this may also read across to charges on drawdown investment pathways,” she says.
Aegon pensions director Steven Cameron said a small increase in charges for bigger investment returns “is of course a good thing”.
The government is also backing new long-term asset funds (LTAFs) that would allow DC schemes to hold illiquid assets in open-ended funds. The Financial Conduct Authority revealed its final rules on the new fund structure this week.
See also: Rishi Sunak faces lukewarm demand for LTAFs meant to boost post-Covid recovery
