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Government targets active member discounts

The Government has extended its power to cap pension charges to include deferred members as pensions minister Steve Webb looks to clamp down on active member discounts.

Under current rules the DWP only has the power to cap pension charges for active scheme members.

In a ministerial statement outlining amendments to the Pensions Bill, Webb (pictured) says: “The [amendment] extends an existing reserve power to cap charges for deferred members, which would enable Government to protect all scheme members from high charges, not just active members.”

Some of the UK’s biggest pension providers, including Aegon, Aviva, Scottish Widows and Standard Life, offer active member discounts, which allow pension schemes to operate a two-tier charging structure for active and deferred members.

Webb has previously described active member discounts as “deferred member penalties”.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. I have never seen a deferred member charge higher than 1.5% under any circumstances and expect that most will be 0.5/0.6% active AMC rising to 1% for deferred members. Bearing in mind policyholders can move at any time without penalty, or preserve their discount with a monthly payment of as little as £20 gross (AEGON) is this really a major issue? If I were Steve I’d be worrying about all the would be NEST joiners heading for the B & CE scheme which is long established and likely to be cheaper and more attractive than NEST.

  2. It’s about time. Sharks have been transferring members from schemes charing 1% to things like 0.75% rising to 1.5%, so in the end almost all members will be worse. It’s almost become a fire sale with IFAs chasing commission and to say “they can always transfer” is nonesense as hardly any ever do and come RDR will you enteratin a client with a TV of under £5,000?

  3. The issue should be that AMD’s are only there to generate comission for IFA’s. It has just enabled ‘polly to put the kettle on’ for a few more years. The average member is only in a scheme for 4 years, so why on earth would you recommend a product which is going to charge them un competative AMC for most of there time in the policy. Oh,h and they will need advice to move, and a typical IFA wouldnt do that becasue the pot is generallyy so small that the comission for the switch wouldnt pay for your time. Bout time these AMD (IC Comission) schemes were put to bed.

  4. Like most things if used properly then the amd model works well. I have implemented numerous times and been able to improve on the previous level amc in place previously. Also, why should active members/employees subsidise those who have left a company? Oh, and what about NESTs active member penalty ie the contribution charge!! Perhaps that should be investigated as well why he is at it. On second thoughts though leave it in because it only helps our cause in steering clients away from the “NEST solution”. Happy days

  5. I have recently completed a GPP for a local employer for which I recommended a company which does NOT give AMD’s, but the company proprietors chose one that does on the basis that this is positively discriminating in favour of their current employees, and if that costs those who longer work for them a little more then why should they be bothered. They no longer have a responsibility towards the welfare of those individuals.
    So…Anonymous…we are not all sharks, sometimes the client actually has an influence, and if it’s what THEY want and it makes no difference to me….why should I argue?
    Huw’s comments make sense, but there will always be a cost-benefit calculation to be done. If the cost of a transfer exceeds the saving on reduced charges then why bother. And we haven’t even looked at the performance issue yet!
    If Reg could spell I’d take more notice, even though his viewpoint is completely wrong and misinformed.

  6. I agree with Huw and DK2001.
    If the scheme is single charged and at/below stakeholder charging levels, than I think an active member discount is ethical. Do ban them is unethical. It should however be the EMPLOYERS choice provided it is a stakeholder or stakeholder exempt scheme as the employer is already doing MORE than is required of them by providing an employer contribution of 3% or more.
    I am however concerned that I have seen large employee benefit providers move schemes away from lower charged stakeholder when an HR manager or senior manager has changed without discussion or tendering for ongoing work with the previous agent for the scheme (who’d dealt with earlier HR managers for nearly 10 years) and replace with a GPP with a member discount with the SAME provider and that to me STINKS, when all the staff asked wanted to maintain the relationship with the existing agent.

  7. Many of the comments above imply that Active Member Discounts are only being used in conjunction with commission. I know of various examples where an AMD has been used to bring ongoing charges for employees down to as low as 0.25%/0.3% rising to 0.5%/0.6% for deferred members (certainly no higher than 0.8%), making significant savings for members against the existing arrangements (where the existing “advisers” put everyone in the default fund and justify the higher AMC by giving “individual” advice to all members). perhaps the next stage of the review will be to investigate the “added value” an additional fund based charge is providing?

  8. Only in the pensions world does an employee retain a price negotiated because of bulk purchase, so those against AMD should also suggest that life cover, PMI, CI and IP should all be set up with continuation options which the employer pays for in their premiums.

  9. Anonymous and others are spot on. Necessity may be the mother of invention but it’s clear that commission necessity is the mother of AMDs (almost said the Mother of All AMDs – sorry getting my AMDs and WMDs mixed up).
    Only by AMD-ing it, can employers be persuaded that it is worthwhile to go to the effort of churning the existing arrangement. Advisers love it (all those £££s of commission) and insurers love it (because they are working on the apathy principle and expect to bank the leaver AMC for many years). To every right thinking adviser I say this ‘be sure to seek out those deferreds and switch them out of the penal charged contract’. Then, at least those insurers who were complicit in this shameless scam would get the pain they deserve

  10. Cost wise, an individual pension pot doesn’t become viable to the provider until it reaches a certain level say £5,000. If Reg is correct about the 4year average then an AMD should encourage the individual either continue paying or transfer/consolidate. Whilst advice would be nice, it can easily be done direct by the individual. AMD itself is not necessarily the problem, it’s the lack of information available to the man in the street that is as much to blame.

  11. Anonymous says:

    “On second thoughts though leave it in because it only helps our cause in steering clients away from the “NEST solution”. Happy days”.

    Regardless of the benefits? Oh, NEST don’t pay commission do they? Sharks, indeed…

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