The charge cap proposed by the Department for Work and Pensions is a ‘blunderbuss’ designed to appease tabloid newspapers rather than address real issues says Lord Hutton.
Speaking at the Society of Pension Consultants’ conference this morning, Lord Hutton, who was secretary of state for work and pensions between 2005 and 2007, said however that there were significant hidden charges, not currently within the DWP’s charge consultation, such as internal fund management costs and custody charges that did need further investigation.
He also floated the idea of potentially different contribution rates for different income groups once the full 8 per cent of band earnings is in place, with low earners staying at that level, but contributions rising for middle and higher earners.
Hutton said: “Politicians have this sensibility where they see it as part of rip-off Britain, so we had better impose a cap on charges. And they can see it will get great headlines in the Daily Mail. But good headlines rarely make good policy. The government is using a blunderbuss on charges. There is a real problem with the focus on costs and charges. But there is an issue around fund management costs and custody fees, and I think we need to open that up and make it easier to have that debate.
“With auto-enrolment the challenge four or five years ago was how do we make it easy to save in the workplace. We looked around and felt if you can take away.
We didn’t want to frighten the horses – so we didn’t set the bar too high.
“The contributions rates are going to have to be revisited at some point. For those on low earnings the rates we have at the moment are going to be enough to get them over the threshold. But if you are on medium earnings you are not going to get there. So that is the group we should really be talking about. I can’t think of another solution other than increasing contributions.”