Aegon has called on the Personal Accounts Delivery Authority (PADA) to make it clear to potential personal account customers that charges may have to rise in future.
The comment follows a meeting on Monday between Aegon’s head of business regulation, Steven Cameron, and PADA representatives.
It followed news that the PADA will consult on personal account charges next year.
The provider says differences between actual and assumed employer and employee behaviour will affect the schemes’ running costs.
It says unknown factors, such as whether opt out rates will match expectations, could mean PADA’s initial charging assumptions have become “over optimistic”.
Aegon believes the scheme rules should allow charges to rise to avoid calling on tax payer subsidies if costs exceed charges.
The provider also highlights the potential for a timing mismatch between charges received and costs incurred.
PADA faces upfront costs in establishing personal accounts, which may it may only over the longer term.
Aegon says undue focus on keeping charges low at the outset could build up financial pressures for the future and lead to later joiners facing higher charges.
It says PADA will have to borrow to finance any mismatch between costs incurred and charges collected.
The Pensions Policy Institute (PPI) says the mismatch varies dramatically with the charging structure chosen, the most extreme mismatch coming from a flat annual management charge (AMC) structure.
Aegon suggests an AMC and contribution charge combination better reflects the timing of underlying costs and should minimise possible cross-subsidies from general taxation or the need for charges to rise in future.
Steven Cameron, head of business regulation says: “Personal accounts are a huge social experiment which must work fairly for initial and future members and the tax payer. Getting the financials right will be a key part of the success.
“Rather than be influenced by government aspirations over charge levels, PADA must weigh up all the issues before setting both the level and shape of charges. We must avoid letting the scheme get into financial difficulties as this would further undermine public confidence in pensions.
“Giving PADA the power to increase charges if necessary will be a vital component. The risk of having to do this can be reduced by building margins into the initial charges.
“But it would go against the spirit of treating customers fairly, if people aren’t told of this possibility before they are auto-enrolled into Personal Accounts. As we move towards implementation stage, the industry needs to work with PADA to get the best outcomes for all consumers.”
Today Pensions Minister Mike O'Brien said The Pensions Regulator will monitor personal accounts.
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