Several organisations operating in the pensions market have welcomed government proposals for the introduction of personal accounts, announced yesterday, but have questioned whether it is possible to limit both charges and access to funds.
Among the firms commenting on the latest DWP pensions reform White Paper, Jupiter is one of the specialist groups which says it has “potentially workable solutions” to the lack of savings by UK consumers.
It points out, however, while “charging fees of 0.5% or less may seem sensible” – the level of charges the government suggests could be achieved in the short-term –argues it will severely limit the range of funds available and keep some of the best fund managers and providers out of the market, perhaps because there is little room to cover the cost of using funds once administration costs have been recouped.
The Association of British Insurers, in particular, picked up on comments levelled by the DWP suggesting the fund range could include ethical or socially-responsible investments, but notes specialist funds are likely to be more expensive and their inclusion may not therefore reflect the true cost of running the national pensions savings scheme.
Stephen Haddrill, the ABI’s director general, says:
“Attention now shifts to the new Delivery Authority, which must ensure both that personal accounts will succeed and that the rest of the pensions market can continue to grow and flourish. We remain concerned that the government is unrealistic on costs and charges, particularly if it wishes the private sector to offer specialised funds, such as for ethical investment. The Authority must be expert and it must consult properly.”
Similarly, Norwich Union and Fidelity are both concerned the limited range of choice likely to be offered would be detrimental to the needs of consumers .
Graham Vidler, head of pension strategy at Norwich Union, says:
"These proposals are an important step in the right direction and Norwich Union supports the principles behind Personal Accounts. Anything that encourages people to save more for their retirement has got to be good news.
“However, the current proposals do not offer the right level or type of choice necessary to maximise and sustain take-up. Our research – of 1260 people - illustrates that a lack of choice will result in one million more people opting out altogether.
“The value of consumer choice remains a critical area that Norwich Union will continue to press upon Government and the Delivery Authority.”
Fidelity is suggesting, for example, consumers should have been given the choice of choosing a personal account provider which is outside the NPSS to give them a wider range of funds to choose from.
Simon Fraser, president of UK and Europe institutional business at Fidelity International, is critical of the focus on charges as he comments:
“We believe that personal accounts should have included an option to choose personal account provider that would have allowed investors the choice of a wider investment strategy and allowed the financial services industry to be more involved in the delivery. This would ensure a greater degree of choice with the benefit that the cost and complexity of providing choice would fall outside NPSS.
“There are more important aspects to focus on than squeezing the costs to the lowest level. Fidelity International will continue to work with the DWP/PAB on what the funds within the final Personal Accounts model might look like,” continues Fraser.
In contrast, however, Xafinity Paymaster – one of the largest pensions administration providers to the UK occupational pensions market – argues the government’s target of achieving 0.3% amc is achievable in the long-term.
In what appears to be a potential pitch for the right to handle personal accounts administration, Robert Branagh, director of client development at Xafinity Paymaster says the government should be “applauded” for “getting the details right” of what it says is a low cost, simple, universal and workable scheme.
“It is Xafinity Paymaster's view that Turner's proposed 0.3% annual management charge is viable, a view the government has now stated is achievable in the longer term. Xafinity Paymaster already collects over £600m a month in contributions on behalf of NHS Pensions, so has extensive experience in this area. We are delighted that the government has clearly taken our experience of managing contribution collection and administration on board and that our scheme is the closest model to what the government is proposing,” he adds.
That said, its figures are based solely on the administration of personal accounts and do not incorporate the charges which may be levied by the funds themselves so it is still unclear whether 0.3% over the long term could be achieved.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].
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