The Pension Quality Mark (PQM) is setting a tougher standard on the charges that people have to pay out of their pension pot by lowering its cap on charges from 1 percent to 0.75 percent of pot size per year.

This means that pension schemes applying for the benchmark must prove that all charges paid by savers in the default fund do not exceed 0.75 percent per year. This covers all fees, including annual management charges, as well as administration, contribution and consultancy charges. The new cap applies to everyone in the scheme, whether or not they are active contributors. The change will be effective from 1 April 2013. The previous cap of 1 percent per year has been in place since PQM’s launch in September 2009. The PQM estimates that someone who pays charges of 0.75 percent per year could end up with a pension pot of around eight percent larger than someone paying annual management charges of one percent per year.

Chris Hitchen, PQM Chairman, said: “Up to 11 million people will be auto-enrolled into a workplace pension, so we have to change defined contribution pensions for the better. We want to push fees down so that savers can enjoy better pensions. Charges can have a huge impact on people’s savings, and our tougher new standard is a big step in the right direction. “Pension charges have decreased since the introduction of PQM, but we don't want these gains to be unravelled as auto-enrolment reaches medium and smaller-sized employers. These employers, and their workers, deserve information about what good defined contribution pensions look like, and that's what PQM provides.” Schemes that already have PQM will have an extra two years on average to meet the new charges standard. PQM schemes that applied before 1 April 2013 need to comply with the standard by their first renewal after 1 October 2014.