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The Personal Accounts Delivery Authority publishes its charging structure consultation response document

The Personal Accounts Delivery Authority publishes its charging structure consultation response document

PERSONAL ACCOUNTS DELIVERY AUTHORITY News Release (Ref: 06/2008) issued by The Government News Network on 15 July 2008

The personal accounts delivery authority has today (15 July) published a summary of the responses to its consultation on possible charging structures for personal accounts.

The document also sets out how the responses received will help the delivery authority shape its recommendations. The delivery authority intends to provide advice to the Secretary of State for Work and Pensions on a potential approach for the charging structure for personal accounts before the start of the procurement process.

The authority received over 40 responses to the consultation. Respondents included industry bodies, pension scheme providers, consumer groups, employer groups and interested employers.

There was no clear consensus view on the most appropriate charging structure for personal accounts. The majority of respondents were in favour of either:

- An annual management charge (AMC)-only structure; or

- A contribution charge with an AMC.

Respondents in favour of an AMC-only structure saw it as simple and transparent, which they felt would encourage participation in the scheme. Respondents in favour of a contribution charge with an AMC argued that it would be the most sustainable option, with the flexibility to deal with a range of business risks.

The options of a joining fee and a contribution charge-only structure received only limited support from respondents. Arguments against these options included potentially negative perceptions of a joining fee for a scheme which auto-enrols members, which could encourage opt-out, and the perceived unsustainability of a contribution-only charge in the long term. The consultation also asked whether additional charges should be made for particular activities, to keep the costs of the scheme down. This was generally supported by respondents; who urged the authority to keep the scheme simple to limit the need for such charges and to ensure any additional charges were clearly communicated to members.

Tim Jones, Chief Executive, said:

"Although there is no clear consensus about which charging structure would be best, there is agreement about the qualities the charging structure will need to help personal accounts succeed in its ultimate goal - that of achieving adequate retirement outcomes for more people.

"Stakeholders agree that the charging structure will need to be fair, to be easy for scheme members to understand, to help members to secure good retirement outcomes and to ensure that the scheme is sustainable. "Our job now is to consider the options and issues further, taking into account the responses we have received, before providing recommendations, later this year, to the Department for Work and Pensions."

Paul Myners, Chairman, added:

"The responses to this consultation show there is no easy answer. What is clear is that the charging structure will be a key design decision for the scheme. The choice of charging structure will have a direct effect on member outcomes. It will affect the viability and sustainability of the scheme and it may have an impact on participation in the scheme. "I would like to thank everyone who took the time and effort to participate in this consultation. This process has been incredibly helpful and informative. We will take all of the views expressed in the submissions into account when forming our recommendations to the Department."

- ENDS -

Download a copy of the response document at:

Notes to editors

The charging structure consultation has given the delivery authority several issues to consider, including:


- All respondents highlighted the importance of keeping the product proposition for personal accounts simple. Respondents were clear that member behaviour and product complexity could be key drivers of costs. Indeed a number from the financial services industry highlighted that often pension schemes have considerably higher administrative costs than non-pension savings products, and that this higher cost is driven at least partly by member behaviour.

- A key consideration the delivery authority will take into account in designing the personal accounts scheme will be to keep the scheme simple: to keep costs down, to keep communications clear and to minimise delivery risk. For example building simplicity into the scheme will include designing a core set of services, and identifying those areas where additional charges may be required.

Evaluating charging structures

- Respondents were broadly supportive of the evaluation criteria proposed by the delivery authority in the discussion paper. Two additional criteria were proposed by a number of respondents:

- Impact on the market: this would assess the impact of the charging structure on charging behaviour in the financial services industry, and the potential for the scheme to be unfairly advantaged.

- Both the personal accounts delivery authority and the Department are clear that the personal accounts scheme will not be unfairly advantaged. If there is any Government support, it will be compatible with European legislation on competition and State aid.

- When recommending a charging structure, the delivery authority will take into consideration the potential impact on charging behaviour on other qualifying schemes.

- Flexibility to deal with future policy change: this would assess the charging structure's responsiveness to change, particularly in the context of the 2017 review of personal accounts. The delivery authority will assess flexibility when evaluating the different charging structures against the sustainability criterion.


- to have a significant affect on participation. They felt that charges would not be as important to members as issues such as the affordability of their monthly contributions and their trust in the scheme.

- Most respondents identified clarity and simplicity of communication as critical to member perceptions. Clear, simple explanations of the rationale for the charging structure, and what it might mean for members, was therefore felt to be important-potentially much more so than the nature of the structure itself.

- The delivery authority recognises the importance of building trust and confidence in the scheme, including through clarity and transparency of communication about the charging structure. The delivery authority will use the sources of evidence identified by respondents to help inform its understanding and approach in this area.


Key facts about pensions reform and personal accounts

The latest population projections suggest that the number of people aged 65 and over will almost double by 2055. And the Department for Work and Pensions estimates that around seven million people are not saving enough to deliver the pension income they are likely to want, or expect, in retirement.

In its 2005 report to Government, the Pensions Commission called for wider, fairer pensions coverage. It also identified automatic enrolment into a workplace pension scheme and employer contributions as key factors in effectively tackling under-saving.

Pension reform

In response to the Pensions Commission's recommendations, the Government is implementing an integrated package of reforms, of which personal accounts is a key component.

The Pensions Act 2007 reformed State pensions and raised the State pension age. It also set up the personal accounts delivery authority in an advisory role. The current Pensions Bill will, on Royal Assent, build on these reforms.

The Bill introduces a duty on employers to automatically enrol employees into a qualifying workplace pension scheme and to make a (minimum) 3 per cent contribution. Personal accounts will be one of these qualifying schemes and is intended to provide a workplace pension for those that currently don't have access.

About us

The personal accounts delivery authority is a non-departmental public body (NDPB), established in 2007 to set up personal accounts. The authority is currently advising the DWP on the operational and commercial aspects of policy and preparing for implementation. It will move into implementation mode following Royal Assent of the current Pensions Bill.

Personal accounts will be a trust-based occupational pension scheme, run by a trustee corporation and independent of government. It will be a qualifying scheme under the Government's reforms and is intended to complement, not replace, existing workplace pension provision. Its target market will be those on moderate or low incomes (£5,035 to £33,540 in 2006/07 terms), who don't have access to a workplace pension.

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