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Now: Pensions fee controversy escalates

Criticism of the way master trust provider Now: Pensions charges members has escalated with two letters published by MPs on the work and pensions select committee.

In February, Now: Pensions director of policy Adrian Boulding wrote a letter where he rebuffed criticism from committee member and Labour MP Steve McCabe who alleged the way it charges fees is unfair.

Now: Pensions charges members £1.50 per month for an administration fee and 0.3 per cent for an annual management charge.

In his rebuttal, Boulding points out most pension providers charge a flat annual management charge based on percentage of the fund.

He also says that though Now: Pensions combines an investment charge with a pounds and pence monthly administration charge, its charges remain low.

But a letter published by the committee also contains an allegation from PensionBee chief executive Romi Savova where she says “the arguments in Mr. Boulding’s letter may sound fair, but we fear they are misleading”.

She adds: “We are deeply concerned that the Now: Pensions charging structure allows small pots to be extinguished by charges, an outcome that is inconsistent with auto-enrolment and inconsistent with achieving value for money for those customers.

“The arguments in Mr. Boulding’s letter may sound fair, but we fear they are misleading. Mr. Boulding has presented you with a set of assumptions that are likely inconsistent with the reality of the Now: Pensions member base.”

Savova also suggests MPs should follow up with Now: Pensions and ask further questions about how it charges members.

She says: “We hope you will ask Now: Pensions to act now in order to stop this injustice on lower income members of society. You may wish to follow up with Now: Pensions with the following questions: Do the assumptions in your analysis reflect the reality of your customer base? What is the average salary level? What is the average time spent in the scheme? What proportion of your pots are at risk of being eroded by charges?”

The second letter published by the committee is from chair and MP Frank Field to Boulding which asks further questions about Now: Pensions’ charging structure.

In response to the allegation it misled the committee a Now: Pensions spokeswoman says: “Now: Pensions’ charges are entirely transparent and among the most competitive in the market for longer term saving. We have been proactive in sharing our charging structure in great detail with the work and pensions committee.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Whilst a fixed monthly plan administration charge does have an air of ‘I’ve got the 90’s on the line, they want to talk about their pension charges’, is also reflects quite a bit of regulatory rhetoric over the last 10 years.

    Cross subsidy is banned – but a flat annual management charge cross subsidises small pots, as it costs the same to send a letter to someone with £10 in their pot as it does to someone with £10m in their pot.

    There are some costs that scale, and there are some that do not, and if you want to be scrupulously ‘fair’ then a mix of flat and scaling charges is the only way to do it.

    Of course that isn’t ‘fair’ to small pot holders as it means they may not achieve value for their pots – depending on which version of fair is today’s obsession.

    Personally I like a flat percentage based annual fee – so large pots pay more – but where you’re operating in a market where you are trying to be a scale player, with a large number of low value customers, and competing with a provider who’s had over half a billion of government subsidy (so potentially paying every single one of Now’s customer’s admin fees for years), I do have a bit of sympathy.

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