Measures to protect small pension pots from being eroded by banning flat fee charges on default defined contribution (DC) pensions used for auto-enrolment (AE) with pots worth less than £100 have been laid in parliament today (10 January).

The rules, which are expected to come into force from April 2022, will mean that pension savings invested in the default funds of schemes used for AE with a value of £100 or less will be exempt from flat fees, in a move that is expected to benefit “hundreds of thousands” of savers across the country.

The government previously confirmed in November 2021 that it would push ahead with the changes, following an industry consultation, whilst plans for a single universal charging structure for use within default funds of DC pensions used for AE have been put on the backburner amid industry opposition.

Commenting on the news, Pensions Minister, Guy Opperman, said: “Automatic enrolment has truly revolutionised pension saving in the UK. More than 10 million people have been enrolled into a workplace pension, with an additional £28.4bn per year being saved since 2012.

“By removing flat fees on pension savings worth less than £100, we’re protecting savers, particularly those who regularly take on short-term work or change jobs frequently, and helping them build for their financial futures.”

Industry experts have also previously backed the proposals, although concerns have been raised that more needs to be done, as experts warned that even with the new protections, it is possible for the value to be eroded to £100, which "won't go very far in retirement".

However, the government has confirmed that it will continue 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.

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