The long term financial security of personal accounts must be the top priority for the body tasked with devising the charging structure of the scheme, Aegon says.
The personal accounts delivery authority (PADA) is set to publish a summary of responses to its charges consultation, which put forward four possibilities including a controversial annual management charge (AMC), on 15 July.
Aegon says PADA and the Government must choose a charging structure that matches charges received and costs incurred, or member benefits will be at risk and the taxpayer subsidy will rise.
The charging structure of personal accounts has divided the pensions community, with some, including the IMA, supporting an AMC and others arguing it would be unfair.
Aegon says 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.
Steven Cameron, Aegon head of business regulation, says: “PADA must give priority to the long term financial security of the personal accounts scheme and a dual charging structure is the best way to achieve this.
“In the current climate people are more risk averse and want to know their money is safe. We can’t afford another crisis of confidence in the savings arena.”
Cameron adds: “Personal accounts are too big to fail so the taxpayer will ultimately have to step in if things go wrong. To reduce the risk of this happening, the charging structure chosen must match when costs will be incurred as closely as possible.
“People who are arguing for stakeholder-style charges for personal accounts really need to come up with an answer to the stability and security points. Does the taxpayer really want to provide ongoing subsidy?”
In March, consumer research released by PADA suggested 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 an AMC would penalise those with larger pension pots.
But the following month, the IMA argued an AMC would be a “fair and transparent charge” which would help to encourage individuals to remain in personal accounts.
PADA launched its charges consultation in January 2008 concerning the structure, not the level, of charges.
PADA is initially considering four options – annual management charge (amc), contribution charge, joining fee and contribution charge with amc. When it has considered responses PADA will make recommendations about the most appropriate charging structure to the Secretary of State for Work and Pensions.
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