Savers in pension schemes set up on a commission basis pre-RDR are on average charged an extra 0.2 per cent a year, DWP research reveals.
An independent study of defined contribution pension charges commissioned by the DWP shows that, on average, members of schemes with in-built commission pay an additional 0.2 per cent in annual management charges compared to members in schemes without commission.
The DWP is currently considering the impact a ban on in-built adviser commissions would have on auto-enrolment.
Scheme size was also found to be an important factor affecting the average AMC paid by members. Across both trust and contract-based schemes charges tend to be lower in large schemes when compared with smaller schemes.
The level of contributions, which providers use to help determine the amount they charge, and the age of the scheme are also cited as key determinants of the AMC.
Overall, the average charge in all contract-based schemes was 0.84 per cent, compared with 0.75 per cent in trust-based schemes.
According to the report, providers argued that higher charges gave them freedom to offer a better service to customers.
It says: “Providers felt that higher charges sometimes allowed them to offer a range of higher quality services, which could help drive member engagement.
“A few providers described anecdotally how charging a bit more allowed them to devote more resources to nurturing employer and member relationships, for example, by spending more money on producing high-quality communications.”
Advisers also suggested choosing a pension scheme was about more than just price.
The report says: “Some advisers shared providers’ views that there was more to picking an appropriate scheme than simply identifying the one with the lowest charges.
“While they always took charges into consideration when researching the market, they looked primarily at how different charges would deliver value for money.
“Advisers did not agree on a specific list of services for which it was worth paying more, but explained in broad terms that they would recommend a higher-priced scheme if they felt that it was better suited to the employer’s and members’ individual objectives.”