The news, which will further dampen the ABI’s ambitions for a system managed and administered by competing branded providers, arguably plays into the hands of the IMA.
The IMA wants a centrally administered system with wants an independent Board, much like the White Paper’s delivery authority, to select asset managers to control the assets in a fully diversified default fund.
IMA chief executive Richard Saunders says:
“The IMA has argued throughout that the Turner model stood a much better chance of delivering a successful personal accounts system than any of the alternatives that were put forward. We are pleased therefore that the Government has today accepted that advice.
“The centrally administered model works best for small employers by providing a single point of contact for them and the minimum of red tape. It gives investors a simple, low cost, but professionally managed default option, overseen by an independent Board whose duty is to act in their interests. And it enables the expertise of the financial services industry to be brought to bear on the management of personal accounts.”
But Scottish Widows head of pensions development Ian Naismith says insurers will compete hard for the contracts and says fund managers may struggle to meet the low annual management charges. These have not been set by the Delivery Authority but it is understood to be looking at between 30 and 50 basis points.
Standard Life head of pensions policy John Lawson adds: “My biggest fear is that too much of the charges will be taken out of the back-end to pay fund management costs.”
An IMA spokesperson says: “We are talking about bulk institutional management here not retail fund management. The more people in the fund the lower the charges.”