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RoyLon hits out at ‘frenzy’ of discount deals

Royal London has slammed active member discounts on some group pension schemes, which mean members are hit with a higher annual charge if they leave their employer.

The firm says active member discounts can see scheme members no longer employed by the sponsor company charged up to three times more than those who are. In some cases, such as Aviva, providers pay the adviser a higher rate of commission for AMDs.

Aegon, Aviva and Scottish Widows offer active member discounts.

Royal London chief executive John Deane says: “Active member discounts have become disappointingly more prevalent in the industry over the past 12 months. Our concern is that this practice is supporting unsustainable levels of commission.

“We are also concerned about whether the end-consumer understands the inc- rease in charges when they eave their employer so we have declined to play in that area.

“If you think about the mathematics, the higher the staff turnover, assuming those people remain in the scheme, the greater the revenue for the provider. That feeds the commission frenzy that exists out there.” He adds that Royal London’s business levels have suffered as a result of not wanting to undertake this practice.

But Aegon denies that the discount deals have an imp- act on commission levels in the markets.

Life and pensions marketing director Andy Marchant says active member discounts are fairer because they distribute costs among members.
He says: “The cost of setting up and running a scheme is more fairly distributed on an active member discount basis than with a single annual management charge.

“Those who carry on contributing are rewarded and pick up a less disproportionate slice of the costs.”

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  1. Royal London are a total bore on this. The market has decided and they should put up or shut up. If an AMD means that we don’t have to have nil allocation periods or unfathomable member penalties then i am allfor them. Yes the charge is higher if people leave but not as extreme as nil allocation periods with people leaving within the first 12 months

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