Pension saving is often considered one of the best ways for people to plan towards their retirement. Through formal savings and investment vehicles, Britons can build up compound interest returns which snowball over time in the hopes of creating a sizeable pension pot when it is time to depart from the workforce. Pensions, though, do not come without fees, and at present, these can range up to 0.75 percent – where a cap then kicks in.
However under new plans, the Financial Times reports, the Government is considering a relaxation of the fee cap in the hopes of raising funds for its flagship “levelling up” agenda.
The move could drastically affect the pensions landscape, but also have a palpable impact on Britons themselves.
There are concerns about what this could mean for retirement plans of those hoping to leave the workforce at a certain age.
According to XPS Pensions Group, based on reaching a typical pot of £305,000 by 66 – working out at £19,000 per year inclusive of the state pension – Britons may be forced to work five more years if fees rose from 0.75 percent to 1.5 percent.
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The pensions cap was first introduced five years ago in an effort to protect workers who are auto-enrolled into workplace pensions.
At the time, there were concerns workers would have their hard-earned pension savings eroded by high charges.
But the higher fees could help to fund long-term projects such as better infrastructure, renewable energy projects and tech, all of which the Government is interested in for its “levelling up” agenda.
The matter is not yet set in stone, however, if there were to be an announcement, it is expected imminently.
This is due to the fact the Chancellor Rishi Sunak’s Budget and Spending Review is just around the corner on October 27.
The Financial Times added the proposals would be subject to a consultation to determine the best approach.
If the rumoured proposals were to go ahead, they would come six months after the Department for Work and Pensions (DWP) refused performance fees to be partially or completely excluded from the cap, as a result of a consultation.
Charges are important when considering pensions as although the value of investments can fluctuate up or down, Britons will have to pay the charges regardless.
The Government-backed website MoneyHelper warned that over time charges can make a “huge difference” to a person’s returns and add up in the long run.
Britons may wish to seek assistance from a financial advisor on matters which relate to their pension and retirement plans. These experts can often provide tailored assistance.
Alternatively, Government-backed services such as MoneyHelper and PensionWise may also prove useful.
Express.co.uk contacted the Treasury, who declined to comment on the matter.