The Government wants to cap pension scheme charges at 0.75% to help savers when they retire, a minister said today as wholesale reforms of the system cleared the Commons.
Pensions Minister Steve Webb said the coalition was launching a "full frontal assault" on fund managers' fees, with its favoured plan aiming to ensure more than 99p of every £1 goes into the savings pots of people who will now be automatically signed up to a workplace pension.
Under the wider reforms, the Government will create a single-tier state pension of £144 from 2016, increasing the entitlement age from 66 to 67 between April 2026 and April 2028. There will also be a "triple lock" to ensure the payment always increases by higher than earnings, prices or 2.5%.
People wanting to qualify will have to contribute for a minimum of 10 years and National Insurance contributions for 35 years will be needed to gain the full amount.
Mr Webb said the fundamental reforms would "stand the test" of time, as he told MPs savers needed confidence they could safely put money away for their retirement.
Outlining the Government's Pensions Bill at third reading, he said: "The reason for this Bill is that we have a state pension system that is grounded in the models of the Second World War - a system where men went out to work and women depended on men, a system which was of mind-numbing complexity and made it impossible for people to plan rationally for their retirement.
"What we all want to see is a pensions system that doesn't keep being chopped and changed but stands the test of time. I believe that the single tier pension... will indeed stand the test of time and will provide firm foundations for retirement savings."
Labour's Gregg McClymont said his party did not want to stand in the way of the Bill, which received an unopposed third reading in the House of Commons tonight. It will now go to the House of Lords for further scrutiny by peers.
He said he welcomed the Government's decision to introduce a cap on pensions charges, even if it had to be done with amendments to the Bill rather than from the outset.
Mr McClymont said: "In taking forward this Bill in the round, we think the (Government) has made some significant steps forward in the state pensions sphere.
"We do say overall that we do not oppose this Bill because we think the principles of a flat rate state pension is a sensible one."
Earlier, Mr Webb said the coalition will launch a consultation tomorrow calling for a 0.75% cap on workplace pension schemes, which aims to protect people who do not take too much of an interest in their post-retirement packages.
He said employees currently enrolled to a workplace pension are likely to have the scheme chosen for them by their employer, which could leave them paying low-sounding charges but ultimately lose them a significant cash sum in the long term.
Mr Webb explained if a person saved £100 a month and a 1% pension scheme charge was applied, it could accumulate to more than £160,000 coming out of their pension during their working life.
Coalition reforms also hope to make it easier for pension pots to follow workers when they switch jobs and allow people to claim refunds if they opt to withdraw from a pension fund after 30 days or less, Mr Webb added.
But the Bill was not welcomed by all MPs.
Labour's Julie Hilling (Bolton West) said around 720,000 women would not be entitled to the higher pension rate and would be worse off because of the Government's changes.
She said: "Like me, those women are angry and upset that they have done the right thing all of their lives and they will be disadvantaged and disadvantaged against men born on exactly the same day on which they were born."
Speaking outside the Commons, pensions expert Dr Ros Altmann said: "It is of course right that people need good value pension schemes to save into with auto enrolment, but it is also important that we consider the losses they can sustain when buying an annuity.
"Buying the wrong annuity can be even more damaging to people's pension funds than being in a higher charging scheme. There are no controls on the rates annuity providers can offer nor on those charges levied for buying the annuity either.
"In addition, the Governments own NEST scheme established at taxpayers' expense, also needs to reform its huge 1.8% initial fee. For older workers auto enrolled into NEST the fees can be over 2%. Reforming NESTs charges should be an important part of these charge cap reforms."