The Government is facing criticism over fees for its new auto-enrolment pension scheme, with claims it is too “generous” to pension funds, and that users could be charged thousands more than in a British equivalent over the lifetime of a plan.

The criticism relates to a cap placed on the fee levied on the total value of a pension pot by pension funds involved in the scheme – which the Government has set at 0.5 per cent.

While the British cap for auto-enrolment fees is higher, at 0.75 per cent, a state-backed operator there charges 0.3 per cent annually on the value of a pension pot.

The Government has argued there are fees that bring this rate up.

Dr Laura Bambrick, head of social policy with the Irish Congress of Trade Unions, said the cap was “generous”, and called for it to be lowered. “The 0.5 per cent maximum management fee is excessive. The cap is a good idea but it has to be reduced,” she said.

Dr Barra Roantree, an economist with the Economic and Social Research Institute whose work focuses on taxation, welfare and pensions, said “a difference of 0.2 per cent in fees makes a huge difference compounded over the lifetime (of investment) – they look small, but over decades they really matter”. He said higher management charges “would mean savers keeping less of their pension pot, especially if their investments yield a high return”.

He said the difference could potentially amount to tens of thousands. “It depends on the size of the funds, but it really does add up. It sounds small, but it is large, and particularly for guys who might not have a huge fund,” he said.

“What’s crucial is that those automatically enrolled are given access to a product with the lowest possible fees,” he said.

UK scheme
The Department of Employment Affairs and Social Protection defended the scheme, saying it would not be accurate to say investors in the UK scheme would only pay 0.3 per cent in fees. It argued there were other fees levied by the British equivalent plan, including a fee of 1.8 per cent on contributions.

Jerry Moriarty, chief executive of the Irish Association of Pension Funds, said overall the fee structures were “broadly equivalent” due to the charges made on contributions into the British scheme.

The department said it was anticipated that fees charged would ultimately come in below the cap. It said it was important for participants, employers and the State that its scheme costs are kept low and transparent.

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