Universal charging structure could disadvantage AE savers, warns B&CE

A mandatory single charging structure across auto-enrolment pension providers could cost savers as much as £27,000, equal to an additional three years’ retirement income, according to analysis by B&CE, the provider of The People’s Pension (TPP).

The government previously launched a consultation on proposals to move to a single, universal charging structure for use within defined contribution (DC) schemes used for auto-enrolment, although these plans were placed on the backburner amid industry concerns.

Analysis from B&CE revealed the potential cost of the proposals to its membership, warning that the more than five million workers in TPP could collectively risk losing millions.

The provider estimated that the average pension member could face an extra £26,853.11 in fees as a result of the proposals, suggesting that its own combination charging structure, meanwhile, would result in a lifetime annual management charge of 0.23 per cent.

This is based on TPP’s charging structure, which includes an annual charge of £2.50 – equivalent to 21p a month, a management charge of 0.5 per cent of the value of a member’s pension pot each year, as well as a rebate on the management charge, giving back between 0.1 per cent on savings over £3,000 and 0.3 per cent on savings over £50,000.

TPP emphasised that it gives more than a £1m back to members every month, with its total membership projected to receive around £34.5m a year in around five years' time.

More broadly, the provider warned that implementing a universal charging structure only for auto-enrolment pension providers could risk distorting the market, either putting those saving through AE at a disadvantage, or causing pension providers to increase charges for all members.

B&CE CEO, Patrick Heath-Lay, commented: “As a not-for-profit organisation, the rebate is an example of how we’re using the money we make to directly benefit our members, helping them to save thousands more towards their future.

“We believe that banning combination charging structures like ours would be a backwards step as it will remove incentives for saving more towards retirement and will unfairly target savers in workplace pension schemes.

“We’re very proud of the fact that we already give back £1m a month – a figure only set to increase - and we think that it’s only fair to our members that we’re able to continue to do so in the future.”

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