The Pensions Regulator has accused insurers of using active member discounts to rip off consumers as policymakers move to prevent schemes levying higher charges on deferred members.
In a statement to defined-contribution scheme trustees, this month, the regulator warned pension schemes that it does not view active member discounts as “fair” or “acceptable”.
TPR says it takes the same view of AMDs offered through contract-based pension schemes.
In an interview with Money Marketing, TPR executive director for DC June Mulroy accuses pension providers of using AMDs to boost profits.
She says: “We have found that deferred members have been paying an awful lot more for nothing – there were no efforts made to find them and no efforts made to get information to them.
“Transaction charges in general have plummeted in the last 20 years but members do not seem to be getting any benefit from that. I think active member discounts have been seen too often and too easily as a way of making money.”
This follows pensions minister Steve Webb’s decision to extend the Department for Work and Pension’s power to cap charges to include deferred scheme members.
Aegon, Aviva, Scottish Widows and Standard Life all currently offer schemes which have different charges for active and deferred members.
Aegon regulatory strategy manager Kate Smith says: “There are various reasons why an employer would cho-ose an AMD. A lot of companies like them simply because they provide a benefit to people who stay.”
Informed Choice managing director Martin Bamford says: “There is a danger that the regulator goes too far here and blurs the line between regulation and commercial practice.”