Aegon, which has been lobbying for Nest to adopt a dual charging structure, says a combination charge is the best way to reduce the timing mismatch between income from charges and costs incurred while also being fair to members.
Steven Cameron, head of business development at Aegon argues that the move reflects the trend away from mono-charge products that is already happening in the market today. He added that while dual charging is likely under the FSA’s proposals for consultancy charging, it would be important for employers to compare life office solutions with Nest on the basis of the manufacture cost alone and not with the cost of advice rolled in.
Standard Life head of pensions policy John Lawson says the move could prompt providers currently paying up-front commission to move towards a dual charging model. Lawson also says the complexity of a dual charge structure for Nest will make it virtually impossible for the FSA to police advisers putting in arrangements that are potentially more expensive.
Cameron says: “We’ve always believed the financial stability of the NEST scheme should be a top priority and the recent financial crisis has made this even more imperative. In the current climate people are more risk averse and want to know their money is safe.
“This validates a move away from mono-charge structures that was already happening.
“Whether we will move further in the direction of dual pricing before 2012, I do not know yet. But it is a new dynamic in the market that all providers will respond to over time.
Lawson says: “There is no way you can compare the charges on Nest with those of a single AMC product because there will be some people who will be better off and some who will be worse.
“You may see existing commission-paying insurers moving in this direction prior to 2012.”
Mark Futcher, associate at Barnett Waddingham says:
“ ’Back to the Future’ on charging structures and a move away from clear and simple stakeholder guidelines that have been promoted so heavily by the Government since 2001. I suspect that stakeholder providers will welcome this news! Once again there is no real detail on this up front charge; how long will it last for, will everyone pay it regardless of when they join, will it apply to all contributions? I believe that this also contradicts their investment statement that they do not want to give members a negative impression in the early years hence the investment option will be cash. With returns on cash so low at the moment members may still see a fund value less than what they contributed due to the initial charge.”
Tom McPhail, head of pensions policy at Hargreaves Lansdown says: “The Nest structure works out at roughly 50 to 55 basis points, which is a pretty good deal, given they are offering this to absolutely everybody.”