The issue of small pots should not be underestimated: the Pensions Policy Institute (PPI) predicts that the number of deferred pots in the DC master trust market is likely to rise from 8m in 2020 to around 27m in 2035. There is a significant risk, particularly to deferred small pots, that charges will erode pot values, perhaps to zero, principally where a flat fee charge is used.
Though this set of proposals is designed purely to limit the damage done to members’ savings by flat fees and administration costs, the government’s response noted the ‘strong support for addressing the wider issue of small-pot proliferation’.
The proposals are now expected to be put out to further consultation in the coming weeks.
The government is also committed to improving transparency and the standardisation of costs disclosure information. The feedback to the consultation showed support for increasing the uptake of standardised cost disclosure templates. These were launched by the Cost Transparency Initiative (CTI) in May 2019 to enable pension scheme trustees to make costs and charges comparisons across their different investment management suppliers and asset classes, making it easier for trustees to scrutinise and challenge costs and performance. The government is to closely monitor the voluntary adoption of the CTI templates and will look to introduce legislation in the future if it does not see satisfactory voluntary take-up levels.