We take our political neutrality very seriously here at Sensible Investing.
Indeed, having lauded Labour leader Ed Miliband as our Politician of the Year for 2012, nothing would give us greater pleasure than to see the Conservative Work and Pensions Secretary Iain Duncan Smith walk off with that highly coveted gong for 2013.
But it’s actually the LibDem Pensions Minister Steve Webb who’s making the early running for this year's award. Last week he reinforced his claim to it with two very welcome announcements on the new system of auto-enrolment schemes.
Larger companies have already had to auto-enrol their employees into workplace pension schemes. All companies will be made to comply within five years.
Now Mr Webb has announced that companies who hire consultants to advise on these schemes will need to pay any charges themselves, and will be banned from passing them on to their employees.
Earlier this year, a report by the consumer group Which? revealed that some consultants are taking up to £600 in charges from employees in the first year, then £60 a year thereafter - even though staff have no say in the matter.
Dr Ros Altmann, a pensions expert and former Labour government adviser, welcomed the announcement. “Consultancy charging was a huge scandal in the making and it is entirely right that this practice should be outlawed,” she said.
“Millions of workers are being automatically enrolled into pension schemes at the moment, but the regulators were allowing their pension funds to be raided to pay fees to 'consultants’ who advised their employers on which scheme to choose for auto-enrolment. Although the workers foot the bill, they receive nothing in exchange.”
But the Pensions Minister didn’t stop there. He also proposed a consultation on the possibility ofsetting a cap on the maximum charge that can be levied on savings in so-called default funds, which account for more than 80% of pension pots.
As you’d expect, the announcement met with a frosty reception from the pensions industry - notably Aviva and the Association of British Insurers.
Tom McPhail, head of pensions advice at Hargreaves Lansdown, expressed concern that the cap might extend beyond default funds, saying: “It’s important that investors can still access more specialist and actively managed investments if they want to and for this reason it would be inappropriate to apply the charge cap to all pension investments."
But why should a cap only apply to default funds? As regular viewers of of our videos know, the charges on actively managed funds are far higher in the UK than they are in other countries - typically around a third higher than in the US, for example - and, over time, can typically account for between a third and a half of a policy’s value.
It’s quite right that politicians like Ed Miliband and Steve Webb are taking an active interest in this issue. The corrosive impact of charges on the retirement savings of ordinary working men and women is a national disgrace.
The fund management industry is a powerful lobby, and we can expect plenty more bleating from the City in the months ahead. Any politician, regardless of party label, who’s prepared to stand up to that lobby and fight the consumer’s corner deserves our full support.
Image courtesy of The Telegraph