PADA charging structure must remain attractive to target market

In its response to the Personal Accounts Delivery Authority’s consultation – Building Personal Accounts: Choosing a Charging Structure, which closed on Tuesday (April 22) – the SPC expressed its concern that personal accounts did not become a quasi-state arrangement benefiting from large subsidies, which squeezed other schemes out of the market.

But it warned that the charging structure must also remain attractive to the target market – as high charging levels would be subject to significant scrutiny when personal accounts were launched.

It said: "There needs to be a charging structure that is attractive to the target market for personal accounts – moderate to low earners not covered by other provision – and which will maximise the possibility of recouping the substantial subsidies, which the government has already effectively provided for personal accounts."

The SPC said charging a one-off up-front fee on joining the scheme would help reduce annual management charges but would be an incentive to opt out of the scheme, and noted that contribution charges might also be unpopular because they would be perceived as effectively imposing a penalty on higher contributions.

Despite this, the SPC welcomed PADA’s ambition to reduce charges by increasing participation.

SPC secretary John Mortimer told PP: "This is to be applauded, provided increased participation is not achieved by extending participation beyond the target market.

Aegon head of business regulation Steven Cameron added: "We can’t afford another crisis of confidence in the savings arena."

He added: "While we welcome this important consultation, we should not overstate the importance of the charging structure on influencing member participation.

"Affordability and confidence in the long-term viability of the scheme will be much stronger drivers."

See also: The Personal Accounts Delivery Authority should not be forced to adhere to UN principles for responsible investment, the Investment Management Association says.