Mandatory single charging structure could cost membership millions if the government bans auto-enrolment pension providers from using combination charging structures says the B&CE, provider of The People’s Pension.
Millions of pounds could be lost by members of one of the UK’s largest workplace pension schemes, with many individual savers losing thousands of pounds from their pension pots.
The warning comes ahead of the Department for Work and Pensions proposals that could force all auto-enrolment pension providers to implement a single, flat annual management charging structure.
The scheme which provides auto-enrolment pensions to more than five million workers across the UK, employs a hybrid charging structure that rewards members for saving more.
Its fee structure is made up of three parts: an annual charge of £2.50, equivalent to 21p per month, a management charge of 0.5 per cent of the value of a member’s pension pot each year, and a rebate on the management charge, which gives back between 0.1 per cent and 0.3 per cent on savings over £3,000 and £50,000.
As automatic enrolment matures, the number of people who benefit from the management charge rebate will increase significantly, as will the amount given back, with the total membership expected to receive around £34.5 million per year in just five years.
According to the current combination charging structure, the average earner could see their lifetime annual management charge fall by more than half to just 0.23 per cent if they save with The People’s Pension throughout their working lives. But if the government implement the proposal, a saver like this could lose nearly £27,000, according to the pension provider.
According to the pension provider, imposing a universal charging structure that only applies to auto-enrolment pension providers would distort the market, disadvantage millions of people who save through auto-enrolment, and force pension providers to raise charges for all members.
B&CE CEO Patrick Heath-Lay says: “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 £1 million 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.”
