The Personal Accounts Delivery Authority (PADA) says the majority of respondents to its charging consultation paper are split between an AMC-only structure or an AMC plus contribution charge.
PADA received over 40 responses to the consultation from industry bodies, pension scheme providers, consumer groups, employer groups and interested employers. It will use these responses to shape its recommendations to the DWP on the charging structure for personal accounts later this year.
Commenting on the findings, PADA says respondents in favour of an AMC-only structure saw it as simple and transparent, which they felt would encourage participants.
Those who backed AMC plus contribution argued it would be the most sustainable option, with the flexibility to deal with a range of business risks.
The options of a joining fee and a contribution charge–only structure received only limited support. Arguments against these options included potentially negative perceptions of a joining fee for a scheme which auto-enrols members and the perceived unsustainability of a contribution-only charge in the long term.
However, support was widespread for the proposal that additional charges should be made for particular activities, to keep scheme costs down, provided they were clearly communicated to members.
Tim Jones, CEO PADA, says: “Although there is no clear consensus about which charging structure would be best, there is agreement abut the qualities the charging structure will need to help personal accounts succeed in its ultimate goal-that of achieving adequate retirement outcome for more people.”
Respondents’ backing for a charging structure involving an AMC appears to contradict consumer research by PADA earlier in the year. This found the majority of people believe an AMC would be unfair and would fail to put users in control as they would have difficulty calculating the charge in advance. Concerns were also raised that an AMC would penalise those with larger pension pots.
However, the Investment Management Association (IMA) put its weight behind an AMC for personal accounts saying it believed consumers who took part in the survey lacked enough information on the charging schemes. It says mechanisms could be put in place to address the threat to large pots such as lower AMCs above a certain level. There could also be a cap on charges which could be applied to the administrative element, the fund element or both.
An AMC structure would have the key advantage of being compatible with existing commercial practices and would benefit employers and scheme members by providing maximum transparency and comparability, the IMA argues.
The IMA told PADA is would also consider a contribution charge and AMC, as recommended by the ABI. The combined charging structure has also been backed by Aegon which argues a flat AMC structure would put the personal accounts scheme under “great financial pressure” and could, in a worst case scenario, force the scheme to close. It argues a charging structure combining a modest percentage contribution charge with an AMC is the best way to safeguard member interests and minimise taxpayer subsidy.
Personal Accounts are due to be launched in 2012 targeting those on moderate or low incomes (£5,035 to £33,540 in 2006/7 terms) who don’t have access to a workplace pension.
PADA is a non-departmental public body established in 2007 to set up personal accounts. It is currently advising the DWP on the operational and commercial aspects of policy and preparing for implementation. It will move into implementation phase following Royal Assent of the current Pensions Bill.
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