Stakeholder pension cap to be removed

The Treasury is set to relax the one per cent stakeholder pension charging cap, after three years of persuasion.

12:19 11 June 2004

The Treasury is set to bow to life insurers' demands and relax the one per cent stakeholder pension charging cap after three years of persuasion.

Following a year-long consultation on the cap, sources predict that the Treasury will soon offer a new pricing system which will enable companies to take an upfront percentage of the amount which has been invested.

The new pricing structure will also be extended to several medium and long-term savings products, which are due to be launched by the government next year.

The life insurance industry has been lobbying for three years in an attempt to persuade the government to relax its rigid adherence to the one per cent annual cap.

Since their launch in April 2001, stakeholder pensions have been criticised by life insurance firms across the UK because the low charging cap neuters their effectiveness, with several major life assurors actually withdrawing from the market.

Several representatives of the life insurance industry have already welcomed the government's decision. Francis McGee, the Association of British Insurers' head of regulation and strategy, told the Independent: "The impact of one per cent charging on the pensions market is already clear in terms of deteriorating sales.

"If the government is committed to closing the savings gap, it needs to move away from one per cent."