Now Pensions has called on the Department for Work and Pensions (DWP) to support the creation of a taskforce as part of efforts to address the issues around small deferred pension pots.

In its response to the DWP’s consultation into the auto-enrolment (AE) charge cap, the pension provider said the proposed taskforce would aim to reach a solution in advance of the next charge cap review, which could then deliver a sustainable long-term solution.

It stated that it shared the DWP's concern that combination charges alongside high numbers of small deferred pension pots could lead to individuals having their savings eroded by charges.

The firm suggested the taskforce could be made up from industry, government, regulators and consumer groups.

Now Pensions also proposed that members with multiple pots within one scheme only be charged once for administration, adding that members should not be charged at all if their deferred pot is valued at less than £50.

The provider conceded that setting a floor for charges was a balancing act between fairness to all members, ensuring the existence of a cap does not introduce cross subsidy, avoiding discouraging members from combining pots and undermining master trusts’ financial sustainability.

The company consequently endorsed what it called “a balanced approach to change”, where even the smallest caches of member savings could not be completely eroded by charges but AE master trusts can continue to serve the core AE market.

Now: Pensions CEO, Patrick Luthi, commented: “The government needs to work with the sector to address these issues. Resolution of high numbers of small, deferred pots could, in time, lead to improvements being made in the level and structure of the charge cap as well as possible improvements in member engagement as they see their pots grow to a more substantial size.

“We are encouraged by DWP’s recognition of the importance of combination charges. These are important in guarding against excessive cross subsidy between members and ensuring transparency. It is notable that all five core AE providers have some form of combination charges.

“It is these core AE providers that have done the heavy lifting by ensuring that the government’s ambitions for AE can be met.”

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