The Treasury has today decided to raise the charge cap on stakeholder pension products to 1.5% for the first 10 years they are held, reverting it back to 1% therafter.
The long-awaited announcement follows concerns expressed by the industry, suggesting the existing 1% cap would have made the new products uneconomic to sell.
According to the Treasury's consultation on "stakeholder saving and investment products regulations, both medium term investment and pension stakeholder products will have an annual management charge capped at 1.5% for the first ten years of the life of the products, with the cap thereafter set at 1%.
The rate of interest payable for cash deposit account, such as cash ISAs, must, however, be within 1% of the Bank of England's base rate.
Financial secretary Ruth Kelly, says: "The Government has always maintained that the price cap for stakeholder products should strike a balance between the interests of consumers and the economics of the stakeholder market."
She continues: "The 1.5% cap for the first 10 years will allow the cost of basic advice to be incorporated within the product charges, while maintaining excellent value for consumers.
We realise that, for less efficient providers these charge caps represent a challenge. But it is only right that firms are challenged to increase efficiency so that they can offer customers the best possible deals. For those firms that are able to exploit innovative and efficient ways of distributing stakeholder products these charge caps represent an excellent opportunity for profitable growth," Kelly adds.
Secretary of State for Work and Pensions Andrew Smith says: "The new structure will incentivise providers to market the new stakeholders more actively, and continue to guarantee a very good deal for the customer. Because the charge falls after 10 years, people will be encouraged to save for the long term."
The Treasury will be reviewing the effects of the caps in 2008, but they will come into effect already next year when the products are introduced in April.IFAonline
Partner Insight: Cathi Harrison, director of para-sols and Apricity and Clare Farrell managing director at Northfield Wealth met in London recently to discuss how to stay on top of regulatory risk.
CEO labels whistle-blower as 'brave'
Adds up to £130m FUM
Our weekly heads-up for advisers
Think tank report