A hybrid charging structure looks to be the most favourable option for personal accounts after the Personal Accounts Delivery Authority launched its charging structure consultation last week.
There are a number of options, including using an annual management charge, a contribution charge, a joining fee or a combination of these proposals.
The Association of British Insurers is proposing a contribution charge in addition to the annual management charge as “the only fair and practical solution”. It says a hybrid charging model would help to make personal accounts financially sustainable as an AMC would generate very little income in the initial years after 2012.
The Pensions Policy Institute says no single structure or combination of charging structures would meet all of the criteria originally proposed by the Government. PPI director Niki Cleal says: “Each charging structure has advantages and disadvantages and there are trade-offs that have to be made.”
Legal & General wealth policy director Adrian Boulding says: “This is not really an investment product because the sums of money involved are tiny. It is a monthly collection product so I think they should go for a monthly flat rate charge of £2 for each member. This would match the charge to the incidence of expense. There would need to be a small annual management charge as well.”
Aegon head of business regulation Steven Cameron says: “It is encouraging to see a clear acceptance that a flat annual management charge is not the obvious starting point but I am puzzled why Pada believes there are commercial sensitivities over publishing its financial modelling. Undue focus on a flat annual management charge structure or on keeping charges low at the outset could build up financial pressures which could push up the costs for members at some later date.”