The insurer told Pensions Management it ensured the difference between the active charge and the deferred charge was never more than 0.5%, but admitted the charge for deferred members could peak at 1.5%.
“We price all of our GPP [group personal pension] schemes individually, but a more typical charge structure would be 0.8% active to 1.3% deferred,” Aviva added.
PM’s investigation was prompted by two recent government papers into AMD structures.
The Department for Business, Innovation and Skills queried the charges in its Call for Evidence paper, published July 8, with the aim to inform the government’s negotiating position on the Consumer Rights Directive as to whether contingent or ancillary charges should be assessed for unfairness.
“The government believes in principle that an economic case may exist to regulate charges that do not form part of the essential bargain between the trader and the consumer,” the report said.
According to statistics released by the Department for Work and Pensions earlier this year, just 2% of UK schemes operate AMDs. On average, annual management charges from the seven providers quizzed were 0.6% for active members, but rose to 1% for deferreds.
However, one unnamed provider admitted 69% of its schemes offered AMDs, and the rates used far surpassed the average, jumping from 1% for active members to 1.5% for deferreds.
Aegon also has a maximum discount of 0.5%, “so if a scheme is priced at 0.7% AMC for actives, it will be around 1.2% for deferreds”, but it refrained from telling PM its maximum rate.
Both Aegon and Aviva are adamant their AMD structures are popular with employers as they are able to offer a “genuine enhancement” to employees, and the structure reduces cross-subsidy between active members and deferreds.
Aviva said: “AMD structures simply allow active members to access a lower charge then would have otherwise been available, although this does mean that the charge is increased for scheme leavers.”
Margaret Robertson, PR manager at Aegon, added once a scheme member’s plan has been in force for 10 years, with regular contributions paid throughout, the discount will continue even if regular contributions stop.
Alternatively if a member leaves, they can transfer to an individual pension plan and still receive the discount if regular contributions of £20 or more a month are paid.
A number of insurers lobbied the Financial Services Authority to ban commission on new members of existing schemes from 2012, but the regulator ignored their requests.
- For more on this story, see page 17.
