Personal account charges will struggle to fall below 0.8% if New Zealand's equivalent auto-enrolment scheme is used as a guide, Standard Life says.
According to the firm, administration costs on the Kiwisaver pension, which has been in operation for a year, can be as high as £29 per account on top of the standard 0.5% annual management charge (AMC).
Standard Life argues that, because average earnings are higher in the UK, administration costs could soar as high as £45 in addition to the 0.5% charge the Government is aiming to meet.
It says if personal accounts are charged as a single AMC, rather than a dual charge, this would need to be around 0.8% based upon an average member age of 42.
Standard Life says although the Government has so far ruled out public subsidy of personal acounts, it may be forced to hit taxpayers if it wants to achieve its target charge of 0.5% or less.
John Lawson, head of pensions policy at Standard Life, fears UK taxpayers already with a pension could end up paying twice - once for their own pension and then again for personal accounts savers.
“Based on evidence from New Zealand, personal account charges will struggle to get below 0.8%," he says.
“There is a danger that in attempting to achieve charges of 0.5% or less UK taxpayers will be asked to subsidise the costs of personal accounts in the same way that Kiwisaver is subsidised by New Zealanders.”
In New Zealand, in addition to the 0.5% AMC, administration expenses are subsidised using resident taxpayers' money in two different ways – to pay for Kiwisaver providers (the equivalent of £15 a year) and staff to collect contributions (£14 a year).
Standard Life says average earnings are higher for both men and women in the UK - 61% higher for men, 55% for women – meaning the administration costs of each personal account would soar for the taxpayer.
Kiwisaver has around 700,000 members, of which 13% are under age 18. Of those new workers and job-changers automatically enrolled, 35% opt-out.
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The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
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