Pada finds no consensus on charging structure

No clear consensus has emerged as to how the Personal Accounts Delivery Authority should set the charging structure for personal accounts now the consultation on the issue is closed.

Pada says the majority of respondents were in favour of either an annual management charge (AMC)-only structure or a contribution charge with an AMC.

Pada 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 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 of Pada says: “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.”