The Department for Work and Pensions (DWP) will ban the charging of flat fees on auto-enrolment (AE) pots valued at or below £100 and launch work on how to standardise cost and charges reporting.
The government’s response to its review of the default fund charge cap and standardised cost disclosure, published today (13 January), said that pensions pots that are worth £100 or less, and are saved through AE, will no longer be subject to flat annual fees.
The DWP estimated the new policy will boost protections for those automatically enrolled into a workplace pension, especially those on lower earnings who it noted could be particularly prone to building up a number of small pensions pots.
In addition, the DWP said it is starting work on standardising costs and charges so that true price comparison can be made and a real assessment of the value for money invested can be calculated.
It said that as value for members was a “key priority”, ensuring trustees have the right information available to them was “essential” – noting it would consider legislating on this matter in due course if take-up of the industry-wide Cost Transparency Initiative was not sufficient.
Pensions and financial inclusion minister Guy Opperman said: “Protecting savers and giving them value for their money is my priority. No-one should find their hard-earned pension savings eaten away by charges.
“Removing flat fees on pension pots worth less than £100 will boost the pensions of hundreds of thousands of people and help them enjoy the retirement they deserve.”
Opperman added the work on standardising costs and charges would additionally help people assess their pensions.
He said: “At present, price comparison of the costs of AE pensions is not possible – and this needs changing.”
The industry welcomed the outcome of this consultation but said “a lot of thought” would be needed with regards to how to implement the policy.
Smart Pension director of policy Darren Philp said: “The introduction of the de minimis at £100 is consistent with what we currently have in place for our members and strikes a sensible balance between protecting the member and provider sustainability.
“The application of the de minimis to active members will need a lot of thought as it could be operationally complex as well as inconsistent with other industry charging practices, and we look forward to picking up on these issues during any consultation on the implementation.”
Now Pensions chief executive Patrick Luthi agreed: “Implementation of the change will need careful thought and communication to employers and members.
“Importantly, the advice to members really does not change. Modern employment patterns are more dynamic and will create lots of small, deferred workplace pension pots, and the best thing to do is to consolidate them together to form a single, more manageable pension plan.”