MPs seek industry input to help solve issue of increasing small DC pots

Work and Pensions Select Committee (WPC) chair, Stephen Timms, has written to pension providers asking for ideas and evidence to address the increasing number of small defined contribution (DC) pension pots.

In a letter seen by Pensions Age, Timms asked providers and “others in the industry” to help solve the issue, noting that the number of “very small” DC pots had risen since the introduction of auto-enrolment (AE).

He noted concerns about the effect the rising number of small dormant and deferred pots alongside the flat fee charging structure could have on people’s savings.

“Flat fees are concerning mostly for those with small pension pots,” he wrote.

Timms added that consolidating small pots could play a “major part” in reducing the total cost of saving to individuals, whilst enabling a sustainable, competitive market for lower paid employees.

The recent Department for Work and Pensions (DWP) call for evidence on reviewing the default fund charge cap and standardised cost disclosure for pension schemes included a consideration for preventing flat fee charging structures being applied to dormant pots.

The review also looked for insight on revisiting measures to proactively consolidate smaller pots, while asking industry members whether they were aware of any issues that it would make it difficult to implement measures to limit flat fees for small dormant or deferred pots.

Timms concluded: “The committee would urge those responding to the call, and others, to propose to the department workable solutions for consolidating very small pension pots.

“We would also welcome solutions being sent to the committee, as we intend to consider this topic further early next year.”

One of the providers contacted by Pensions Age, Smart Pension, confirmed that it had received the letter and said that the call for input was a “welcome intervention”.

“It makes no sense for members to have small pots with different providers as this just leads to lost pension pots and unnecessary cost and hassle,” said Smart Pension director of policy and communication, Darren Philp.

“Pension dashboards will help a bit, but we do need action to make it easier and more cost effective to consolidate small pots, and this is becoming ever more pressing.

“We hope that the positive involvement of the select committee will help build the evidence base and consider potential solutions that can be taken forward by government, regulators and the industry."

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