In its January response to the review of the default fund charge cap and standardised costs disclosure (covered in our January edition of Vision), the DWP set out its intention to introduce a de minimis pot size limit, initially set at £100, below which flat fees cannot be charged.
In a consultation published in May 2021, the DWP sought views on the implementation of this de minimis and the proposed legislation.
There are currently 3 permitted charging structures, which providers may levy on the default strategies of qualifying workplace pension schemes:
The de minimis will apply only to the flat fee element of the combination charge. The percentage charge based on the member's value of funds under management, is unaffected by the de minimis, and may continue to be charged on pots of any value.
If a member has multiple pots within the same provider’s default arrangement, the assessment of whether a flat fee should be charged upon that member will be based on the combined value of those pots, rather than on the value of each individual pot (a flat fee can only be levied once per member in this scenario).
Where a member has several small pots of £100 or less with different pension providers, for which a flat fee is chargeable, then the de minimis will be applied according to the value of the member’s pots for each provider.
The DWP has considered the above permitted charging structures and is concerned that the variations may be acting as a barrier to members’ understanding and ability to compare the costs of their pension with other pension products and schemes. The DWP would like to better understand and gather further evidence in relation to this through the consultation process.
In addition, the consultation sought views on a proposal to move to a universal charging structure in future which would only allow charging of a single percentage charge based on the value of the member’s pot within the default strategy. Combination charging would no longer be permitted.
The DWP believes this would make it easier for members to understand the charge levied and, as a consequence, would improve member engagement.
The consultation closed on 16 July and the DWP plans to publish its response later this year. It currently envisages that the legislation required for the implementation of the de minimis will come into force in April 2022, subject to other parliamentary priorities.