Pension fee shake-up
Government plans to protect small pension pots by limiting the level at which fees can be charged on them will be outlined today
Proposals include introducing a threshold of £100 or below which a person cannot be charged a flat fee by their pensions provider, helping limit the erosion of small pot pensions and protect savers.
This will stop pensions worth £100 or less and invested in the default funds of schemes used for automatic enrolment being gradually whittled away by the fees, a situation commonly faced by people who change jobs frequently or take up short-term contracts.
Minister for Pensions, Guy Opperman said:
"We all know what a success automatic enrolment has been in getting more people saving into private pensions – with over 10 million employees paying into a workplace pension since 2012.
"But for some, particularly those who regularly take on short-term work and change jobs frequently, there is a greater chance that they will be automatically enrolled into new workplace pensions a number of times, building up a collection of small pots. It is this group we want to help by changing the way fees work."
The consultation will also set out plans to improve people’s understanding of charges and help them to better compare pension products, to ensure they have the pension that is right for them.
This work will complement plans to introduce pensions dashboards, which will allow individuals to keep track of their small pension pots more easily, helping them to better plan for retirement.
The consultation follows the 2020 Review of the Default Fund Charge Cap and Standardised Cost Disclosure, and the conclusion that it is right to introduce a threshold or a ‘de minimis’ pot size below which flat fees cannot be charged.
The government is seeking feedback from pension scheme providers, trustees, members, and other interested parties and the consultation is open for responses until 16 July 2021.