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Providers clash over active member discounts

Two of the UK’s largest pension providers have clashed over active member discounts ahead of an Office of Fair Trading report which is expected to issue a call to ban the practice.

The OFT launched an investigation into the workplace defined contribution pension market in January this year.

In May, the OFT published an update on the study setting out specific concerns about governance, legacy charges and schemes being used for auto-enrolment which have “built-in” adviser commissions.

The update also pointed to active member discounts, where members who have stopped making contributions to a pension scheme are charged more than active members, as a potential problem in the market.

Pensions minister Steve Webb has also previously raised concerns about AMDs, describing them as “deferred member penalties”. The OFT’s final report is due to be published tomorrow.

Legal & General pensions strategy director Adrian Boulding says: “I expect the OFT to issue a very firm call on the Government to ban AMDs and I think the Government will listen and act on that.

“We would absolutely support that. A charging structure that penalises employees when they leave service is unfair and does not recognise the pattern of employment in the UK.”

Aviva head of policy for pensions and investments John Lawson says: “We have AMDs and we stand behind that structure.

“While the cost of servicing a deferred member will probably be less than the cost of servicing an active member, the accounts that people are leaving behind are generally small. 

“There is always an element of cross-subsidy in pensions but the debate around AMDs has become politicised.”

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