Pension charges for workplace schemes will be subject to a 0.75% cap under government plans confirmed today.
Pensions minister Steve Webb said the cap for auto-enrolment schemes would be in place by April 2015.
The plans, which were originally due to come into force in April this year, were subject to a 12 month delay after questions were raised about the consultation process. The plans were also branded 'not fit for purpose' in an official report.
However, Webb (pictured) said today: "Through the new measures, this government will be the first to get an iron grip on pension charges. We are going to put charges in a vice; and we will tighten the pressure, year-after-year.
"Over the next ten years, the new charge cap will transfer £200m from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first."
Initially the cap will only apply to default funds.
Hargreaves Lansdown head of pensions research Tom McPhail said this was a sensible move "as it would be wrong to prevent investors from benefitting from specialist active management if they wish to do so."
The Department for Work and Pensions said a person earning £20,000 would save about £35,500 over their lifetime if they saved in a scheme with a 0.75% charge compared to a 1% charge.
The government has also set out equivalent caps for schemes with combination charge structures.
Three different categories of pension charge will be banned altogether:
• Payments for sales commission which are deducted from members' pensions
• Charge hikes when people are no longer employed by a company but leave money in the company's pension scheme
• Consultancy charges where members have to pay for advice given to their employer
In addition it said there would be "tough new rules to make sure that all of the hidden ‘transaction' costs in pension schemes are published, and the government will then consider whether these should also be included in the new charge cap".
It added an independent audit of pre-2001 and high-charging pension schemes is due to complete by the end of the year and the government "will consider whether further action to protect scheme members is necessary following that review".
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