The move to end unfair flat annual fees on small pension pots is designed to help prevent savings being slowly eroded over time.

With many workers moving from job to job and accruing a number of small pension pots, the measure is expected to boost retirement savings for hundreds of thousands of workers.

More than 10 million people are saving for their retirement under auto-enrolment with £22.7bn a year being saved compared to 2012.

But a Small Pots Working Group Report revealed that of the 11.2 million deferred pension pots, a quarter are smaller than £100.

Further, analysis by the Pensions Policy Institute (PPI) highlighted that a £100 pot, deferred at age 22, with an annual flat-fee charge of £20 and an annual charge of 0.25% would be eroded to zero well before the member reaches State Pension age (age 68).

For a pot of £500 deferred at age 22, it would be worth around £100 by age 68 under this charge structure.

Minister for pensions, Guy Opperman, said: “Protecting savers and giving them value for their money is my priority. No-one should find their hard-earned pension savings eaten away by charges.

“Removing flat fees on pension pots worth less than £100 will boost the pensions of hundreds of thousands of people and help them enjoy the retirement they deserve.

“We will also be introducing pensions dashboards, which will make it easier for savers to track these smaller pension pots and ensure they’re getting the most from their savings.”

Further details of the plan will be outlined later today by the Department for Work and Pensions (DWP) in its Review of the Default Fund Charge Cap and Standardised Cost Disclosure publication.

A consultation will be launched and the measures are expected to be introduced in due course.

Meanwhile, the DWP is also starting work on standardising costs and charges so that true price comparisons can be made and a real assessment of the value for money invested can be calculated.

Steven Cameron, pensions director at Aegon, said: “We share the government’s desire to make sure that everyone who has been auto-enrolled benefits from the pot they’ve built up, however small that is. Banning flat fees whenever an individual’s fund is under £100 will help. But longer term, it would be far better to find ways of making sure small ‘frozen’ pots left behind when changing jobs are joined up with the individual’s other pensions.

“Pension dashboards when they are launched in 2023 will allow individuals to see all of their pensions in one place, helping them keep track and ideally encouraging them to consider ‘consolidating’ them. In addition, we support the ongoing work on other ways schemes and providers can join up small pots for the benefit of members.

“We also welcome the confirmation that the overall cap on charges when a member invests in the default fund of an auto-enrolment scheme will be left unchanged at 0.75%. We are pleased the DWP has concluded this market is working effectively. While many schemes charge well below the cap, leaving it unchanged means schemes have a margin to invest in innovation or to add new types of investment into their default funds, with the aim of boosting returns.”