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Standard Life hits small firms with £1,200 fee following charge cap

Standard Life will impose a £1,200 a year fee on small employers who have agreed auto-enrolment terms with the provider above the 0.75 per cent charge cap.

Last month, pensions minister Steve Webb confirmed any scheme with a charge above 0.75 per cent would not be eligible for auto-enrolment from April 2015.

In March, Standard Life chief executive Paul Matthews warned employers they could have to pay extra pension fees as a result of the cap.

The provider has now confirmed it will impose a £100 per month “scheme management fee” on small schemes with low average contributions who have already agreed a charge above 0.75 per cent.

Standard Life managing director, adviser and workplace Barry O’Dwyer says: “If the terms of your scheme are currently higher than 0.75 per cent, Standard Life will reduce the member charge to be no more than 0.75 per cent in time for April 2015.

“For larger schemes, meaning schemes with 50 or more employees and at least £150pm average contributions (after allowing for minimum step ups in 2018) Standard Life will bear the cost of the reduction in charge.

“For smaller schemes, meaning all other schemes that meet our standard criteria, a scheme management fee will be introduced at the same time as the reduction in member charge.

“If a scheme management fee applies, it will be £100 per month. We will notify you at least three months in advance of its commencement and we won’t require any further action from you.”

Standard Life head of workplace strategy Jamie Jenkins adds: “We have been considering ways of sharing the cost of providing the pension scheme between the employee and employer, while mitigating any cross-subsidy between schemes. This will result in us asking some employers to pay separately for employer administration services.”

Aegon is also considering imposing employer levies for schemes with charges above 0.75 per cent.

An Aegon spokesman says: “Aegon wants to support as many employers as possible with auto-enrolment and to help their employees get ready for retirement.

“The cap creates a challenge for the industry of achieving commercially viable charges for small or low contribution schemes. Levying a charge on employers is one way of addressing this.

“We consider scheme pricing on a case-by-case basis.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Is this where AE starts to unravel for the small employer?

    It is a very second rate scheme for the member, with minimal fund choice, minimal advice, minimal admin and enforced contributions.

    From an adviser and provider standpoint – unprofitable. From the employer standpoint – intrusive, costly and burdensome.

    It is a ‘pile it high sell it cheap’ scheme and small employers are not in the pile it high category.

  2. Yes Harry, one size clearly does not fit all. I just wish the government would consult the industry before acting then we might get some sensible legislation. Some hope there then .

  3. goodness gracious 15th April 2014 at 1:59 pm

    Guys, Standard Life and Aegon do not seem to be the main players out there and are half-hearted about their offer. The difficulty is the insurers maybe will take on less and less new companies, only wanting smaller schemes comprising of firms with high average pay. The main trust based schemes will have some sort of offer, but NEST will clear up as it is the exception to the .75%. So the charge cap is likely to reduce choice, restricting access to all sorts of funds, albeit with higher charges, for those who are engaged. Will these firms still be trading in 20 years time under the same brand if they can’t provide a simple pension for 0.75%?
    What will Aviva, Scottish Widows, Scot life do?. Will the purchase of all that middleware prove to be for nothing when the charge cap strikes and they can’t be profitable on the small schemes.
    Mind you, how many firms who have chosen Standard (probably because of an existing scheme) will now go to some other provider who will not charge them £100 p.m. Another betrayal of trust from the insurance industry.

  4. This doesn’t seem too draconian or a big shock. I would be more concerned about the costs rather than the charges, so it seems likely that all insurers will avoid the market where the average salary is lower than £15,000. A £15,000 salary equates to roughly £800 pa contribution, which in turn for 1 year’s contribution equates to a charge of £6.

    So if NEST clears up at this end, they will sure need the government subsidy

  5. Just to clarify The Peoples Pension offers 0.5% to any employer at any contribution level. No additional charges.

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