DWP to respond 'shortly' on single charging structure
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The government will move ahead with requiring a £100 minimum pot size to apply flat fees in defined contribution, but has said it will respond separately on its proposal to bring in a universal charging structure for default funds after a majority of respondents said they were against it.
The Department for Work and Pensions will put in place regulations to implement a de minimis of £100 on the charging of flat fees as part of a combination charge from April 2022, it said on Tuesday.
"This will ensure that a member’s pension savings at or below £100 will be protected from flat fee charges," said pensions minister Guy Opperman.
The changes are introduced after a consultation exercise was held this summer.
Universal charges: Next steps to be set out 'shortly'
As well as consulting on flat fees, the government had sought views on introducing a universal charging structure for default funds, but the government has not published a decision at this time.
Opperman said the consultation had helped broaden the government's evidence base and understanding of respondents’ views, but said the issue will be addressed separately.
"I know this is of great interest to the automatic enrolment sector and I believe that clarity and comprehension around charges is important, but I will not rush into making decisions. My department will respond separately on this issue and set out next steps shortly," he said.
The government's original proposal was:
- to rationalise the current three permitted charging structures into a single charging structure;
- the single charging structure would allow charging of a single percentage annual management charge, based on the value of the member’s pot within the default fund; and
- combination charging would no longer be permitted.
The DWP said a majority of respondents to its consultation agreed that the current charging system impedes members’ comparison of different pensions and schemes. Many agreed that a universal charging structure would improve the transparency of charges and allow for simpler and clearer member communications.
Despite this insight, there was a "broad majority" against the proposal to move to a universal charging structure, with some citing market immaturity, voicing fears that simpler charges could lead to fewer providers offering pensions in the auto-enrolment market. Others said it was more important for the employer to be able to compare charges given members' inertia, and yet others wanted to see the emphasis being placed on returns rather than charges.
