Legal & General has warned that the government's planned 0.75% cap on pension management fees is too high and would cost savers thousands of pounds each
The pension provider added that the cap would not help to drive down costs or do anything to tackle the big problem of legacy pension schemes where savers could be getting a poor deal.
These criticisms come on the same day that the Department for Work and Pension's consultation on the cap is to close.
John Pollock, chief executive of Legal & General Assurance Society, said the 0.75% cap was a poor idea.
'Having a cap at a much higher figure will have no impact on new pension schemes, and will result in legacy savers being treated unfairly compared to new savers,' he said.
Instead, the company favours a 'meaningful' cap of 0.5%. This would apply not only for new auto-enrolment schemes, but for legacy pension schemes as well.
Legal & General said the difference between a 0.5% and 0.75% cap would cost employees around £2,500 each. In aggregate, this would amount to £4.3bn lost from pension pots to charges.
But Tom McPhail, head of pensions research at Hargreaves Lansdown, warned that if the government was to impose a 0,5% cap, hundreds of thousands of small businesses and entrepreneurs would have to pay the additional costs towards the setting up of their workplace pension.
'At a conservative estimate, a price cap below 1% would mean every small employer would have to pay between £4,000 and £14,000 in additional administration costs for their pension scheme; it would be bad news for small employers struggling to turn a profit,' he said.
The DWP consultation, launched on October 30, has been seeking industry views on three possible options for capping: a charge cap of 1% of funds under management; a lower charge cap of 0.75% of funds under management; and a two-tier 'comply or explain' cap, which would allow some employers to increase the cap to 1% if they provide The Pensions Regulator with their reasons for doing so.
