DWP Permitted charges within Defined Contribution pension schemes consultation - Which? response

Which? supports the proposal to implement a de minimis below which the flat fee element of the combination charge cannot be charged to members

Which? welcomes the Government’s commitment to improving outcomes for those automatically enrolled into a pension scheme. Prohibiting the charging of flat fees on very small pots worth £100 or less is an important measure to prevent so-called ‘charging out’ and the dissatisfaction felt by savers who find a pension pot has been completely eroded by charges.

We also welcome that the level of the de minimis is to be kept under review. The proposed de minimis won’t prevent all pot erosion as deferred pots valuing as much as a few hundred pounds could be ‘charged down’ to £100, likely creating similar feelings of discontent for savers to those the current proposal seeks to prevent. Therefore, if a solution cannot be swiftly found to facilitate the consolidation of small deferred pots then it may be necessary to increase the level of the de minimis or to revisit the option of a tiered approach in future.

We also agree that improved transparency of charges is important to engender greater member engagement and higher levels of trust. However, we are not yet persuaded that mandating a single, universal charging structure for automatic enrolment default funds is the best way to achieve this. While we favour making cross-scheme comparison of costs and charges easier for members, there is uncertainty around the scale of both the potential benefits and costs that such a change would bring. Requiring schemes to show a personalised pounds and pence figure for costs and charges on annual benefit statements and at pensions dashboards would be a less costly action for schemes to take and it may be a more effective measure, so we think this should be the immediate priority.