Personal accounts AMC ‘unfair’

An annual management charge (AMC) for personal accounts would not be fair to consumers, according to research by the Personal Accounts Delivery Authority (PADA).

The research used discussions and interviews with 76 people and responds to PADA’s consultation on charges, Building personal accounts: choosing a charging structure, launched in January.

The report shows the majority of people say the structure fails to put users in control as they would have difficulty calculating the charge in advance. They also say the charge, which leads to higher absolute amounts taken over time, did not feel like a logical way to collect the running costs perceived as constant.

This aroused suspicions of unfairness, and the perception that the pension pot would lose significant amounts by retirement.

However, consumers see personal accounts charges as a good idea and appropriate if transparent and fair. They would like a single charging structure because of its simplicity and could see combination structures as too complex and as double charging scheme members.

Tim Jones, chief executive of PADA, says: “Although charging structures appear to be a relatively small barrier to acceptance of personal accounts, if the structure is not simple, transparent and explained clearly it could cause trust to be lost in the scheme and prompt opt-outs at this first hurdle. However, we recognise that there is no simple solution that will work for all potential members.”

A combined joining charge and AMC provoked the most negative reaction and seemed the most likely to encourage people to opt out of the scheme.

A contribution charge and AMC, as recommended by the ABI in January, also generated a negative response as people had difficulty understanding it and had suspicions that the Government could use it to make money “by the back door”. However, Maggie Craig, director of life and savings at the ABI, calls the structure “the only fair and practical solution” to funding personal accounts.

A spokesman for the ABI says: "The charging structure must be transparent, and fair to customers of all pension schemes. But personal accounts must ultimately pay for themselves, and any Government loans to cover setup and admin costs must be recouped as quickly as possible through charges, so that there is no long-term burden on taxpayers and PAs do not gain an unfair advantage through state subsidies.

"According to the PPI, these costs could be as high as £4.5bn, and could take almost three decades to pay off using an AMC alone. Our favoured option, a combination of AMC and contribution charge, could achieve this in just a few years."

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Jennifer Bollen
Reporter
Tel: 020 7034 2679
E-mail: Jennifer.bollen@incisivemedia.com