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: http://www.padeliveryauthority.org.uk
Notes to editors
The charging structure consultation has given the delivery
authority several issues to consider, including:
Simplicity
- 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.
Communication
- 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.
BACKGROUND NOTES FOR EDITORS
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.