Aon Consulting is warning the Personal Accounts Delivery Authority that a hybrid charging structure for personal accounts will penalise lower earners.
Pada launched its consultation paper on the charging structure for personal accounts this week and many commentators are favouring a combination of an annual management charge and a contribution charge or joining fee.
But Aon Consulting head of DC Helen Dowsey says: “It is vital that the charging structure should be kept as simple as possible to avoid confusion among DC pension scheme members. We would advise against combining an annual management charge with a contribution charge and/or joining fee.
“A contribution charge will benefit members paying higher contributions as the fixed cost will represent a lower percentage of monies being invested. However, a fixed cost will penalise lower earners making smaller contributions, as this will make up a larger relative proportion of their salary. Given that the Government has designed personal accounts specifically with lower earners in mind, this would seem a regressive step.
“Given the options available to Pada, in order to encourage individual saving and create a relatively simple system, Aon Consulting would recommend an annual management charge that starts at a higher level initially – say 0.5 to 0.6 per cent – but reduces as the individual’s fund reaches specified amounts.”