Something isn't quite right because it looks like your pad is peeking out from underneath. Either your blanket is crooked or your pad is bigger than you thought. You have a large wrinkle below the skirt of your saddle which would suggest to me that it is too long, not broken in yet or crooked.
If your going to use a topper blanket over a pad it should be a tad bit larger to cover the whole pad as far as looking nice or buy a pad specifically for using with a topper blanket.(They sometimes are just a little bit smaller and/or have rounded corners to hide under the blanket) Will it hinder his movement? Probably not. Don't fold it under- that could cause some saddle fit issues.
I DON'T LEAD 'EM AND FEED 'EM, I RIDE 'EM AND SLIDE 'EM.