Workplace pension provider The People’s Pension is to cut its annual management charge for members with larger pension pots.
At present the master trust provider applies a flat 0.5 per cent annual management charge (AMC). The company will move to a banded pricing structure from the summer.
The company says this will immediately reduce the fee revenue it receives by 10 per cent.
From the summer members with the smallest pension pots will still pay the flat 0.5 per cent AMC. But this will fall to 0.4 per cent when members’ pensions exceed £3,000 – however this lower AMC will only be charged on sums over this limit. This fee will reduce again to 0.3 per cent for savings over the £10,000 limit. A lower charge of 0.25 per cent will be charged on pension savings over £25,000 and then again at 0.2 per cent on sums over £50,000.
The People’s Pension says this change was part of its plans to return profits to members. It has been able to make this change as the assets it manages have grown thanks to the success of auto-enrolment. It points out that assets look set to further increase, with the rise in contribution levels to 8 per cent from April this year.
It says this banded charging structure gives workers a long-term incentive to stick with auto-enrolment saving and consolidate multiple pension pots, as charges fall as their savings increase.
It adds that the average earner saving over their working life with The People’s Pension could see their lifetime AMC fall by more than half to just 0.23 per cent.
It says this will boost their retirement pot by almost £55,000 when compared to a lifetime fee set at the cap of 0.75 per cent.
B&CE is the provider of The People’s Pension. Its chief executive Patrick Heath-Lay says: “Auto-enrolment is on the cusp of a significant landmark, with contributions set to rise for 10 million savers across the UK.
“Providers need to respond imaginatively to ensure auto-enrolment is attractive over the long-term, rewards people for saving and incentivises the consolidation of multiple pots.
“Charges can eat away at pensions, and on a flat-rate, percentage fee savers pay a lot more in pounds and pence the more they save. We’re reducing members annual charges as a percentage of their savings in line with the growth of their pot, potentially boosting their retirement income by thousands.”
Heath-Lay adds that he hoped other providers within the industry would follow suit.
The minister for pensions and financial inclusion Guy Opperman adds: “With the completion of automatic enrolment and the next phase of contribution increases about to take place, I’m pleased to see The People’s Pension taking this action to improve value for money for its members.
“I’d encourage all firms to look at what they can do to ensure they keep delivering value as the amounts saved continue to grow.”