Pension providers in the UK could soon be subject to a 50-basis-point cap on fees in default funds, pensions minister Steve Webb has hinted.

In his speech at the National Association of Pension Funds annual conference in Manchester, he indicated that the fees paid by members of National Employment Savings Trust (NEST) could be seen as a benchmark during a forthcoming consultation on a charge cap for defined contribution (DC) default funds.

Webb remained coy about the consultation, promised by the Department for Work & Pensions (DWP) if the Office of Fair Trading’s review of the DC market found problems with charging structures, and only provided the most general indication of the tone of the department’s questions.

“All I would say on the subject of excess charges is, in a world where the government has created a provider with a public service duty to provide pensions at the basis of 50 basis points, why should anybody be automatically enrolled and have their money invested by default in something that charges twice as much? Maybe there is a reason for it, but I haven’t heard it.”

The Liberal Democrat MP praised a number of existing providers – including master trusts The People’s Pension and Now Pensions, as well as contract arrangements provided by large insurers – for offering fees similar to those levied by NEST.

He also said the DWP could consider several approaches in trying to reduce costs for DC members.

“Should we just settle for a round number,” he asked in what was likely a veiled swipe at calls from the opposition Labour party to impose a 1% cap, “or should we go a bit harder?”

Indicating the DWP would also consider a comply-or-explain scenario rather than an inflexible and immovable fee cap, he added: “Should we say ‘actually, we should get a low charge, but if there is something special you’re doing that justifies the higher charge, then you make the case’.”

Turning to general quality standards for auto-enrolment funds, Webb said the department would outline its thinking early next year and “regulate pretty soon after”, and that he could be “quite adventurous” in what was regarded as the minimum threshold for any fund.

He echoed his oft-repeated mantra that workers should not be auto-enrolled into a fund that is not deemed good quality, and noted that too big a variance in standards will also risk making automatic consolidation through the ‘pot follows member’ reform “look a bit ugly”.

“Our minimum quality standards, I hope, will be demanding, but there might still be room for some form of recognition beyond ‘good’,” he said.