Commenting on the Consultation Response of Default Fund Charge Cap and Standardised Cost Disclosure, Rona Train, Partner, Hymans Robertson says:

“We welcome the DWP's conclusions and support maintaining the charge cap at 0.75%. Over time, it’s likely that we will see more investment innovation in the DC marketplace and schemes should have the ability to add more sophisticated strategies to their default arrangements where they believe these will genuinely improve net of fee outcomes for their members. The DWP’s conclusions highlighted low investment in illiquids and, where there is investment, this being property. We feel this now offers clarity to review, improve and provide those better outcomes within default investment.

“The continued exclusion of transaction costs from the charge cap is also welcome.

“As the number of small deferred pots increases, the erosion of pots by flat fees will become a bigger issue and the £100 limit seems reasonable, although somewhat arbitrary – and potentially challenging to administer as pot values vary in size over time based on investment returns. Clearly, this could have an impact on the type of business certain master trust providers may be prepared to accept, particularly in relation to high turnover businesses and increases the importance of finding a longer term solution to effective pot consolidation.”