Workplace pension scheme charges will be capped at 0.75%, Pensions Minister Steve Webb announced today.
The changes will transfer around £200 million pension industry profits to savers' pockets over the next 10 years, Mr Webb claimed as he vowed to "put charges in a vice" and tighten the pressure each year.
The cap will start in April 2015 and will apply to schemes people are automatically put in by their workplace, MPs heard.
Mr Webb has previously explained a 0.75% cap aims to protect people who do not take too much of an interest in their pension.
In a statement to the Commons today, Mr Webb claimed the coalition would be the first Government to get an "iron grip" on pension charges, telling MPs: "We're going to put charges in a vice and we will tighten the pressure year after year."
Turning to a cap on scheme charges, Mr Webb said: "At the heart of our plan is a charge cap of 0.75% for the default funds of all qualifying schemes, with equivalent caps for schemes with combination charge structures.
"This cap will apply from April 2015 and it will apply to all scheme used for automatic enrolment."
He went on: "Over the next 10 years the new charge cap will transfer around £200 million from the profits of the pensions industry to the pockets of savers."
The Liberal Democrat minister said the 0.75% cap would be reviewed in 2017 to examine whether it should be cut.
People should find it possible to compare pension schemes as costs and charges will have to be disclosed in a standardised way in the future, Mr Webb said.
He told MPs that schemes would not be allowed to t ake money from people's pension pots to pay for sales commission from April 2016.
Mr Webb added they would also not be allowed to increase charges for people who are no longer employed by the sponsoring employer of a scheme, so-called "deferred member charges".
He said: "It is not right that people should pay more in charges simply because they have moved employer and consequently stopped contributing to a scheme.
"These charges are particularly unfair in the context of an increasingly flexible labour market where people change jobs more regularly and are therefore more likely to become deferred members."
On standardising costs and charges, Mr Webb said this should "make scheme comparisons a reality for the first time".
He went on: "The transaction costs that are currently hidden in complex and opaque investment chains will be exposed so that there is no clarity about where members' money is really going.
"From April 2015, trustees and those who represent members' interests in pensions schemes will have a duty to obtain information on all scheme charges, and we will start work straight away with the Financial Conduct Authority to develop standardised measures of transactions costs.
"We will use this information to consider whether another turn of the vice is needed in 2017 to take our reforms even further by potentially including transaction costs within the default fund charge cap."
Shadow minister Gregg McClymont said: "Rare is the day where a Government appears to adopt the Opposition's policy lock, stock and barrel.
"Rarer still, is a day when a Government appears to adopt two of the Opposition's policies lock, stock and barrel - what has happened today is two broken markets identified by Ed Miliband in energy and pensions have been accepted and conceded by the Government.
"The Government has belatedly accepted that the market in pensions as in energy is not working for consumers. We welcome this historic change of Conservative and Liberal heart - it is a retreat from free market dogma.
"This is the second time I have welcomed a Government proposal to cap pension charges. You referred in your statement to delivering on your timetable but what you don't say is this is a new timetable."
Mr McClymont said it was important news because pension market failure had big consequences for savers.
He added: "You promised a full frontal assault on pension charges in October. Who has ever heard of a full frontal assault which comes with a 12 month notice period?"
Replying, Mr Webb said: "I understand why you want to talk about energy and income tax rather than pensions because you've nothing to say on the pensions announcement.
"I thought you might say that, so I thought I'd have a look at what Labour's policy was - I guess the first evidence we have is their record in office when they had 13 years to cap charges and did precisely nothing.
"But we do have more recent evidence - you mentioned the leader of the Labour Party and his views on this subject. I've done a little bit of research.
"Clearly, the Guardian was briefed by Labour about the proposals... Patrick Wintour says in 2012 'Ed Miliband will promise to end rip offs in the pensions industry by putting a 1% cap on pension charges'.
"I wonder if you've moved a bit because you saw what we were doing - I get the slight sense that might be the case."