Hogan Lovells

Key Dates

Consultation “Permitted Charges within Defined Contribution Pension Schemes” and draft regulations issued on 24 May 2021.

Consultation closes on 16 July 2021.

The draft Occupational Pension (Charges and Governance) (Amendment) Regulations 2021 expected in force on 6 April 2022.

Review of the Default Fund Charge Cap and Standardised Costs Disclosure” published on 13 January 2021.

Call for Evidence on the default fund charge cap and standardised cost disclosure published on 25 June 2020.


Summary

The DWP is consulting on implementing a ban of flat rate fees on defined contribution (DC) default fund pots in qualifying schemes used for auto-enrolment, where the pot size is less than a de minimis level, to be set at £100.  It is also seeking views on moving to a single universal charging structure at some time in the future.

The consultation follows publication in January 2021 of a review by the DWP of the default fund charges cap, in which the government committed to protect savers from the risk of pension savings being eroded by “high and unfair” charges.

Background: current permitted charging structures within the charges cap

The cap on charges which may be levied on the default funds of qualifying DC schemes used for auto-enrolment was introduced in 2015.  Three possible charging structures are permitted:

Proposals and draft regulations

Universal charging structure

The DWP proposes to replace the current three charging options for default funds of qualifying DC schemes used for auto-enrolment with a universal single annual percentage management charge at some point in future.  Its expectation is that a single charging structure will aid member understanding of charges paid, and of their pensions’ other features, and will improve member engagement.  

Interaction with performance fees

The DWP points out that it recently consulted on draft regulations which would allow schemes to smooth performance fees, often payable on illiquid investments, over five years.  Subject to the outcome of the consultation, it is intended to bring the performance feed regulations into force in October 2021.  The DWP acknowledges that the performance fees proposals have “ramifications” for standardising charging regimes, which it will consider depending on the outcomes of the consultations. 



Date Accessed: 03/12/2021