One of the UK’s largest auto-enrolment pension providers has modified its charging structure, to make it fairer and future-proof against the ongoing impact of COVID-19.A new annual charge of GBP2.50 – equivalent to just 21 pence a month – has been added to the charging structure for all members of The People’s Pension. Given the current volatile financial climate, this annual charge will be deducted from members pension pots later in the scheme year.
The new combination charge structure reduces the cross subsidy by active members of millions of small, inactive pots which are increasingly created by auto-enrolment.
It also cushions the effect on scheme revenues of the extreme market volatility sparked by the COVID-19 global pandemic crisis.
The new combined Annual Management Charge will consist of three components:
• annual charge (GBP2.50 deducted during each scheme year)
• management charge (0.5 per cent)
• rebate on the management charge (between 0.1 per cent on savings over GBP6,000 and 0.3 per cent on savings over GBP50,000)
To further encourage active savers, The People’s Pension will halve the starting rate for a rebate on its management charge to GBP3,000 from GBP6,000, to encourage members to save more for their retirement and consolidate their pots. Nearly half a million of The People’s Pension members would benefit currently. This will be implemented later this year.
As an illustrative example of the new combined charge structure’s impact in encouraging long term saving: a member on an annual salary of GBP20 000 with an initial pension pot of just GBP3000, if they save with The People’s Pension for twenty years, could be paying the equivalent of just 0.3 per cent in total annual management charges.3
Commenting, Patrick Heath-Lay, Chief Executive Officer for B&CE, says: “As we evolve our charging approach to meet changing requirements, we think this approach combines fairness, incentives to save, and prudence. Our modified charging structure cuts fees as members save more, reduces the cross subsidy from actively saving members to inactive small pots, and futureproofs revenues against the unpredictable financial impact of COVID-19.
“These changes ensure we offer fantastic value for money to active savers of all types.”