Plans to end "rip-off" fees which gobble up pension savers' retirement pots have been outlined by the Pensions Minister as he announced that a 0.75% cap will be imposed on charges from April next year.
The Government had been considering placing the cap somewhere between 0.75% and 1% , amid concerns that people are at risk of being put into pensions with high fees which will eat away at their savings and wipe thousands of pounds off their eventual retirement income.
Steve Webb said that, over the next decade, the new charge cap will transfer an estimated £195 million out of the profits of the pensions industry and into the pockets of retirement savers.
Someone on a £20,000 salary would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% charge for managing their pension savings compared with one which had a 1% charge, the Government said.
Three different types of pension charge will also be banned altogether. These are charge hikes which take place when someone no longer actively contributes to their pension scheme, perhaps because they have changed jobs; "consultancy charges" which are imposed on members of a pension scheme who have to pay for advice which is not given to them but to their employer; and payments for sales commission which are deducted from members' pensions.
Mr Webb, who promised a "full frontal assault" on schemes giving poor value, also said there will be new rules to make sure that hidden costs in pension schemes are published, so that the Government can consider whether these should be included in the charge cap.
He said the Government is getting an "iron grip" on pension charges. adding: "It's time to put the saver first".
The Government has set the date of April next year for the charge cap to come in to give firms time to adjust to the changes.
The announcement came as the first phase of a shake-up into how people take their retirement pots, announced by Chancellor George Osborne in last week's Budget, came into force.
Mr Osborne's changes mean around 400,000 people will be able to access their pension savings in a more flexible way in the coming financial year.
From today, the size of the total pension savings that can be drawn down entirely and taken as a lump sum has been raised to £30,000 and size of a small pot that can be taken as a lump sum, regardless of total pension wealth, has been increased five-fold to £10,000.
The shake-up is expected to lead to fewer people using their pension savings to buy an annuity when they retire, which gives them a fixed income, usually for life.
Controversy over annuities has been growing amid tumbling rates in recent years and fears that people are not getting the best deal they could by shopping around.
The overarching aim of all the reforms is to boost confidence in retirement saving, both when people are putting money in their pension pots and later in life when they come to take it out at retirement.
They come at a time when landmark reforms to head off a looming retirement savings crisis are being rolled out, amid fears that people are living for longer but have been failing to save enough for a comfortable old age.
Around 10 million people will have been automatically placed into a workplace pension by 2018.
Richard Lloyd, executive director of consumer group Which?, said: " The 0.75% cap on pension charges is welcome news for the millions of consumers currently paying into rip-off pension schemes who will now be thousands of pounds better off in their retirement.
"Following the Budget reforms people may invest in their pension schemes for longer, so it's all the more important that charges are as low as possible.
"While we're pleased that the Government intends to do more to bear down on other costs in the coming years, we want the cap level kept under review to see if it can be lower in future to help savers get the best value out of their hard-earned money."
Concerns had been raised that as automatic enrolment rolls out, smaller firms in particular with less experience of pensions may be more inclined to put their workers in older, high-charging schemes.
An independent audit of pension schemes set up before 2001 and ones with high charges is due to be completed by the end of the year and the Government will consider whether further action is needed after this.
Tom McPhail, head of pensions research at financial services firm Hargreaves Lansdown said the announcement will give people confidence that their workplace pension will give them good value for money.
He said: "There is a huge amount for the pensions industry to deal with at present, not least as a result of last week's Budget announcement, so it is entirely sensible that the Government has given the industry some reasonable time to accommodate these changes."
Otto Thoresen, director general of the Association of British Insurers (ABI), said the body agreed with the findings of an investigation by the Office of Fair Trading (OFT) last year, which stopped short of recommending a charge cap.
He said: "The OFT, in its workplace pensions review last year, came out against a charge cap. We agree with them. Average workplace pension charges are at their lowest ever levels."
He continued: "The implementation of auto-enrolment, combined with the radical reforms in last week's Budget, have created a challenging environment for employers and pension providers.
"The industry will do all it can to meet these challenges successfully to ensure employees can look forward to a financially secure retirement."
Some major pension providers said they are well-placed to comply with the new cap.
Barry O'Dwyer, Standard Life's managing director, adviser & workplace, said: "Standard Life is quick to adapt to market change and has been at the forefront of implementing recent pension reforms.
"We consistently deliver high quality pension schemes at value for money for employees of companies of all sizes."
Legal & General said it is committed to providing good value default pensions for auto-enrolment, for which customers do not have to pay more than half a per cent a year in charges.
TUC general secretary Frances O'Grady welcomed the announcement, saying the body has long been calling for a charge cap on pensions.
She said: "But the Chancellor tore up the system we use to turn pension pots into retirement income last week without putting anything positive in its place.
"In this the new free-for-all people are going to need far more help and advice if they are going to avoid new rip-offs.
"That will come at a cost and we still do not know who will pay once the Chancellor's initial funding runs out."
Shadow pensions minister Gregg McClymont said: "Savers hit by the cost-of-living crisis have lost out because the Government has repeatedly delayed plans to introduce a cap on rip-off pension fees and charges.
"Today the Government has finally admitted that a charge cap is needed but ministers must have the courage of Labour's convictions and introduce a cap now as they promised. The Government's delay will leave many savers up to £750 worse off."
Caroline Abrahams, charity director at Age UK, said: "Today's announcement is excellent news.
"For too long pension savers have been at the mercy of pension providers, often paying high charges and not receiving value for money.
"Ultimately every consumer saving into a pension should be assured that their pension is good value and good quality. We would urge the Government to ensure that these changes are extended to legacy products following the planned audit."