Steve WebbWorkers automatically enrolled into pension schemes will not see their savings raided to cover advice received by employers under a Government crackdown on rip-off charges.

Pensions minister Steve Webb announced plans to tackle "high and inappropriate" pension fees by banning charges for advice given to employers for auto-enrolment schemes.

He said it was the first step as part of a clampdown on consultancy charges following a six-month review that found more needed to be done to stop advisers deducting high fees from pension pots.

The Government also discovered that employees who move jobs regularly were being hit particularly hard by consultancy charges as they switched schemes. It added that it was looking at capping charges on the default funds within schemes following an investigation of the entire workplace pensions market by the Office of Fair Trading (OFT) and plans to publish a consultation in the autumn.
Mr Webb said: "With millions of people taking up pension saving for the first time under automatic enrolment, we have to give people confidence that they will get good value for money. That is why we are banning consultancy charges, where scheme members end up paying for advice given to their employer."

Industry experts welcomed the move to stamp out the pension charges "scandal" amid fears of a rip-off for the 11 million workers due to be enrolled under the automatic pension saving programme over the next five years.

A recent investigation by Which? found that in the worst scenarios, some employers were prepared to pay charges for advice that would see the first year of a worker's pension savings slashed by 50%.

Dr Ros Altmann said: "Consultancy charging was a huge scandal in the making and it is entirely right that this practice should be outlawed. Millions of workers are being automatically enrolled into pension schemes at the moment, but the regulators were allowing their pension funds to be raided to pay fees to 'consultants' who advised their employers on which scheme to choose for auto-enrolment. Although the workers foot the bill, they receive nothing in exchange."

The Department for Work and Pensions (DWP) said employers are not required to seek advice when setting up an auto-enrolment scheme and can get free advice from the Pensions Regulator.

A DWP spokesman added that if advice was necessary, the Government would expect companies to meet the costs themselves rather than paying for it through staff pension pots.