Industry participants welcomed the U.K. government's proposal to help reduce the costs that erode retirement savings in small defined contribution plans.
The U.K. government proposed in January to ban flat-fee charges in the 8 million smallest retirement plans, as they deplete savings. It launched a consultation Monday and wants feedback from the retirement industry by July 16 on how to implement a new policy.
The government wants to help plan participants who are enrolled into many small plans, due to frequent job changes, to preserve their savings. The Pensions Policy Institute estimates the number of small plans could increase to 27 million by 2035.
A charge cap of 0.75% of funds under management and administration is currently in place for U.K. default funds within DC plans. Plans with less than £100 ($141) in assets will not be subject to the flat-fee charges under the new policy.
"We support plans to introduce a limit on pension pots below which flat-fee charges cannot be levied," said David Fairs, executive director of regulatory policy, analysis and advice at The Pensions Regulator, in an emailed comment in response to the consultation. "This will help reduce the erosion of members' pensions by fees and protect the benefits of savers with small pots."
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, added in a separate emailed comment: "The PLSA supports (the Department for Work and Pensions') aims of promoting cost transparency and comparability within pensions, and it is right that these aims are considered alongside other policy interventions to resolve small pots."
In its consultation, the government also proposed streamlining how costs are calculated for all charges to improve cost transparency in DC plans overall. Currently, charges may be worked out by providers in multiple ways. For example, providers can combine charges on each new contribution with an annual charge of funds under management or combine a monthly or annual flat fee with an annual charge of funds under management.