Pensions Minister Steve Webb said measures announced today will ensure pension schemes deliver value for money for savers.
From April 2015 a 0.75% cap on charges will be introduced for the default funds of all qualifying schemes.
He said the move will end rip-off charges and ban hidden costs, helping people build up the best retirement income possible from their savings.
Over the next 10 years, the government estimates that an extra £195 million of pension contributions will turn into pension savings.
An individual earning £20,000 would save around £35,500 over their lifetime if they saved in a scheme with a 0.75% charge compared to a 1% charge.

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The government has also set out equivalent caps for schemes with combination charge structures.
Three different categories of pension charge will be banned altogether:

• payments for sales commission which are deducted from members' pensions
• charge hikes when people are no longer employed by a company but leave money in the company's pension scheme
• 'consultancy charges' where members have to pay for advice given to their employer

In addition there will be tough new rules to make sure that all of the hidden 'transaction' costs in pension schemes are published, and the government will then consider whether these should also be included in the new charge cap.
An independent audit of pre-2001 and high-charging pension schemes is due to complete by the end of the year and the government will consider whether further action to protect scheme members is necessary following that review.
Mr Webb said: "Through the new measures, this government will be the first to get an iron grip on pension charges. We are going to put charges in a vice; and we will tighten the pressure, year-after-year.
"Over the next 10 years, the new charge cap will transfer £200 million from the profits of the pensions industry to the pockets of savers. Pension savers have paid too much, for too long. It is time to put the saver first.
Tom McPhail, Head of Pensions Research, said: "It is vital that pension scheme members can have confidence that their workplace pension will give them good value for money.
"Today's announcement addresses this issue and means that even if they can't afford a Lamborghini at retirement, at least pension investors won't be helping to pay for the fund managers' new sports cars."