In January 2022, new measures to protect small pension pots from being eroded by charges were laid before Parliament. The regulations, which will come into force from April 2022, ban the charging of flat fees on pension pots held within the default investment strategy of a qualifying workplace pension scheme, where that fee would reduce the value of the pot to less than £100. A proportion of a flat fee can be deducted as long as this does not result in the pot falling below £100 in value.
Pensions Minister, Guy Opperman, explained that the £100 threshold (known as the ‘de minimis’) has been implemented to protect savers, particularly those who change jobs regularly or take on short-term work and, as a result of auto-enrolment, have accumulated numerous small pots. The regulations are expected to benefit hundreds of thousands of savers across the UK.
The regulations come following the DWP’s May 2021 consultation: Permitted Charges within Defined Contribution Pension Schemes (covered in our August edition of Vision), which aimed to gather views on the implementation of the de minimis and the proposed legislation. In addition, the consultation sought views on a proposal to move to a universal charging structure which would only allow charging of a single percentage charge based on the value of the member’s pot within the default strategy. However, the Government’s response to the consultation, which was published in November 2021, confirmed that the DWP would not be implementing a universal charging structure for DC pension schemes following industry feedback.
As well as the de minimis pot size limit, the Government has confirmed that it continues to engage with the pensions industry on wider consolidation initiatives to tackle the growth of small pots, including through the industry-led Small Pots Co-ordination Group.