Treasury announces rise in stakeholder fee cap
The Treasury has announced new capped levels of charges for stakeholder products.
Cash deposit accounts must pay holders interest rates within one percent of the Bank of England base rate.
Providers of pension and medium term investment products will have to cap their charges at 1.5 per cent of the fund’s value for the first 10 years, and one per cent thereafter.
Previously the Government had imposed a one per cent cap, but a number of providers had argued this did not provide sufficient incentive for them to offer the products.
The capped levels will take effect from April 2005, and will be reviewed in 2008.
Financial Secretary to the Treasury, Ruth Kelly, said: “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.”
Stakeholder products were introduced by the Government in an attempt to plug the gap left by the withdrawal of many companies from providing good occupational pension schemes.
They were launched in July 2003 after a report from Ron Sandler found that existing products were complex and difficult for low and middle income consumers to access.
He recommended that a series of simple and safe products, which could be accessed with out the need for personal professional advice, were introduced.
Andrew Smith, Secretary of State for Work and Pensions, said: “The new suite of savings products will be easier for people to access and they will be risk-controlled.
“In the case of the pension product we are requiring providers to move funds into less volatile investments in the run-up to retirement as a safeguard against investment risk.
“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 Consumers’ Association has previously argued vociferously against any increase in charges.
It argues that charges must be low to ensure it is cost effective for people on low incomes to save for the long term. It argues that a 0.5 per cent rise in charges would mean consumers would need to increase contributions by 11 per cent to achieve the same level of pension in retirement.
