Charging for pension plan under scrutiny
( FT )- The body responsible for helping to deliver what the government hopes will become Britain's biggest pension scheme has launched a consultation into the charging structure of the proposed new personal accounts.
Tim Jones, chief executive of the Personal Accounts Delivery Authority, said on Tuesday it was seeking views on whether the scheme should have an annual management charge, a percentage charge on each contribution, a combination of the two, or a joining fee.
The authority is advising the government on how to get the new national pension savings scheme operational by 2012. The scheme's charging structure needs to tread a fine line between encouraging saving and providing adequate revenue.
With the insurance industry anxious that personal accounts do not receive a state subsidy, Mr Jones said it was clear the set-up costs, once personal accounts reached "the execution stage", would have to be covered by the charges levied. That point would be reached well before 2012, he said.
"There is no silver bullet," Mr Jones said, because different charging structures would affect various groups of savers differently. Each needed to be thought through and its likely impact on the numbers who would join the scheme taken into account.
An annual management charge on the fund would perform least well in paying back the set-up costs of the scheme, he said. A contribution charge would bring in more revenue earlier, reducing the scheme's funding requirement, but it could leave the scheme vulnerable to any decrease in numbers of contributors.
A combination of the two "would be best suited to deal with multiple risks", although paying off the set-up costs would take longer. A joining fee would also bring money in early but might discourage people from joining in the first place.
But Mr Jones stressed that "we want views on how the charging structures might affect participation".
He expected the charging structure to be set in secondary legislation, rather than provided to the scheme's trustees as guidance, and said that it was not yet possible to say whether the scheme would achieve the very low 0.3 per cent annual management charge, or its equivalent, that the Pensions Commission suggested should be possible.
The Association of British Insurers indicated that it believed a hybrid charging model would be best. Maggie Craig, its director of life and savings, said an annual management charge linked to a contribution charge "would in all probability strike the right balance".
Mr Jones said the authority's central projection was that 5m to 5.5m people might contribute to the scheme when it was fully up and running, rising over 10 to 15 years to closer to 7m.