DWP proposes single DC charging structure
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The Department for Work and Pensions is seeking views on a proposal to move to a single, permitted universal charging structure for use within the default fund. It is also consulting on how to implement the 'de minimis' threshold for flat fees in defined contribution schemes.
In January, the government announced that it plans to introduce a £100 threshold – or ‘de minimis’ – below which the flat fee element of the combination charge used by pension providers cannot be charged to members.
In January, the government announced that it plans to introduce a £100 threshold – or ‘de minimis’ – below which the flat fee element of the combination charge used by pension providers cannot be charged to members.
It has now issued a consultation on the implementation of the de minimis.
However, it added: "We are also using this opportunity to seek views on the broader direction we should take on the future structure of charges that are permitted within the charge cap."
The consultation therefore sets out the government’s proposal to move to a single, permitted universal charging structure for use within the default fund of qualifying DC schemes used for automatic enrolment, with the aim of making it easier for savers to compare charges.
It is proposing that:
- the government should rationalise the current three permitted charging structures within the default fund arrangement, down to a single charging structure
- the single permitted 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
- combination charging would no longer be permitted
"We all know what a success automatic enrolment has been in getting more people saving into private pensions," said pensions minister Guy Opperman.
"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," he added.
David Fairs, the Pensions Regulator’s executive director of regulatory policy, analysis and advice, said that for savers to get good value for money, it was important that good standards of service and investment performance are delivered with costs and charges at a reasonable level.
“We support plans to introduce a limit on pension pots below which flat fee charges cannot be levied. This will help reduce the erosion of members’ pensions by fees and protect the benefits of savers with small pots," said Fairs.
“We look forward to continuing to work with industry and government to ensure any solutions developed will be in the best interest of all DC members and deliver improvements to saver outcomes," he added.
The consultation closes at 11.45pm on 16 July.
