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Pensions Regulator warns active member discounts are not “fair” or “acceptable”

The Pensions Regulator has warned pension schemes that offering active member discounts is not “fair” or “acceptable”.

It has issued a statement warning trustees of defined-contribution pension schemes that it may take action if they choose a scheme which offers better rates to active members.

The regulator says: “Excessive costs and charges in a DC scheme can significantly reduce a member’s fund. Charging structures must be applied fairly to all categories of membership. Trustees must be able to demonstrate that they have assessed and concluded that the overall charging structures offer members value for money.

“The regulator does not view active member-only discounts (or deferred member penalties) as being fair and, therefore, acceptable.”

A TPR spokesman says it takes the same view of AMDs offered through contract-based pension schemes.

Last week, the Department for Work and Pensions extended its power to cap pension charges to include deferred scheme members.

Some of the UK’s biggest pension providers including Aegon, Aviva, Scottish Widows and Standard Life offer active member discounts.

Standard Life head of pensions policy John Lawson (pictured) says: “The regulator has effectively told trust-based schemes AMDs are not acceptable and they have to go. This is very disappointing because there has been no real debate. This is poorly informed policymaking.”

TPR executive director for DC June Mulroy says: “The build up of several small pension pots when members switch jobs is a challenge for the industry, but we believe it is unfair to address this by penalising deferred members.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. How can the regulator say that AMD is unfair when many work place contract based AMD schemes still have an AMC for deferred members lower than the member could secure in their own name!
    It is also important to remember that the higher AMC only applies to members who cease their employement AND their contributions. Continue to pay into the scheme (in some cases as low as £20pm) and you retain the lower AMC!
    Also if your new employers scheme i cheaper then take advice and transfer your pot into it! Why is that unfair?

  2. More knee jerk policy making without clear thinking. How unusual………..NOT!!!!

  3. Eh? Penalising deferred members?

    Doesn’t a discount imply it is benefiting active members?

  4. Could work toward higher costs 19th October 2011 at 11:36 am

    this may mean an evening out of charges in an upwards direction. For a lot of Providers it may be beneficial to get rid of these AMDs financially.

  5. I am told that some advisers have put schemes in place that impose an AMC of well above 1.5% on leavers, and that seems pretty strong unless there is a good reason for it. But even in those cases, members can move without penalty or elect for to pay £20 gross per month with most providers to retain the discount. I don’t see a TCF problem at all there especially if there is evidence of proper communications highlighting this fact.

    What will happen sadly is the AMC levels will rise for active members rather than reduce for inactive members if these schemes vanish which they probably now will. Most employers simply won’t pay fees to intermediaries to run GPPs so the funding has to come from somewhere.

    It does look like a knee jerk from TPR and the cost will end up on policyholders once again.

  6. just put in a new gpp with an active amc of 0.25% and deferred amc of 0.35%. So the leavers will have something significantly more competitive than the government backed NEST. How is this unfair? Maybe TPR should be reviewing NEST’s charges first. Go figure that. Doesnt help TPR’s credibility does it

  7. Discounts, Enhancements, Active benefits.
    This just proves what a minefield of costs have to be researched when making a recommendation to a client. It’s always the adviser who gets blamed becuase costs whether transparent or hidden alway impact on the final return.
    Business has a cost and moving money will always incur a cost, but i am sorely disappointed that the Industry as a whole favours active members and high net worth client who can afford to pay, yet expect a discount!
    Why do we give reductions or enhanced allocation of units to those who can afford to pay. As always the little people subsidise the others.
    Most of the time the work involved is the same for rich or poor. Why then charge an investor with £10000 a 4%-5% fee but only charge a £1M investor 1%
    (Can’t justify the cost- Wrong: use the money to subsidise smaller investors) RDR will become a cherry picking exercise of affluent clients and there’s not that many to share about.

  8. There are arguments for and against AMD.
    What concerns me is that NEST is enforcing an Active Member Penalty of 1.8% on all contributions, which isn’t suffered by any deferred members

  9. I really do have an issue with the thought processes of those who would suggest that such mechanisms as active fund management discounts are unfair.

    An employer is agreeing to offer a pension scheme to its employees on the most advantageous terms it can offer to help attract and retain those employees. When and if an employee leaves that employer they will be given choices that they can exercise to leave their funds with the employers’ scheme at a slightly higher (but normally below market) rate of charging or move to their own private scheme or transfer funds at no penalty to their new employer’s scheme (if that scheme has a lower charge which often it won’t). In the real world of people being made redundant at short notice, suffering from the global recession and having to pay more for food and fuel, these seem an extremely fair choice.

    All pension schemes need to charge according to the dynamics of the workforce and the amount of effort required to run the scheme. Each has differences that will be reflected in price. So whilst one scheme may be able to run at 0.25% another might have to charge 1%. This is a business and cannot be run if the numbers don’t work out but if the numbers can be made more palitable for current employees by discounting, why on earth should it not be considered by a caring employer?

    Pension is the only benefit regularly supplied and paid for by an employer that an employee continues to benefit from after they have left employment. Perhaps it should be considered unfair that employees cannot continue life cover, income protection or private medical cover after they leave their employer behind, It’s the same principal!

  10. This is the most illogical piece of policymaking. All the comments already written make reference to that.

    As an active employee I would not want to pay more in charges because someone has now left service
    This is what will happen if the folk in the lunatic asylum get their way we will return to level structures that don’t really make sense.

    Nest is expensive with the premium charge. Some schemes on and basis offer significantly better value for both actives and leavers than nest. End of story.

    This will kill the Market twelve months before RDR will. Most employers won’t pay fees especially.

    Again creativity and choice stifled at a time when we need Employers and Employees engaged in saving for the long term.

    We cannot allow this to happen.

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