The membership of one of the UK’s largest workplace pension schemes could miss out on millions of pounds, with many individual savers potentially losing thousands from their pension pots, if the Government bans auto-enrolment pension providers from using combination charging structures.
B&CE1, provider of The People’s Pension2, has issued this stark warning ahead of anticipated proposals by the Department for Work and Pensions3 which could see all auto-enrolment pension providers forced to introduce a single, flat annual management charging structure.
The not-for-profit scheme, which provides auto-enrolment pensions to more than five million workers across the UK, uses a combination charging structure to give money back to its members the more they save.
Its charging structure consists of three components:
- an annual charge of £2.50 – equivalent to 21p a month
- a management charge of 0.5% of the value of a member’s pension pot each year
- a rebate on the management charge, giving back between 0.1% on savings over £3,000 and 0.3% on savings over £50,0004
Already, The People’s Pension gives more than a million pounds back to its members every month. As automatic enrolment matures, the number of people benefiting from the rebate on the management charge will grow considerably as will the amount given back, with its total membership projected, based on current calculations, to receive around £34.5 million a year in just five years’ time.
Based on the current combination charging structure, the average earner, saving over their working life with The People’s Pension, could see their lifetime annual management charge eventually fall by more than half to just 0.23%.
But if the Government makes this anticipated move, the pension provider has warned that a saver like this, could potentially lose out on almost £27,000 – around an additional three years’ retirement income.5
The pension provider has also warned that implementing a universal charging structure only for automatic enrolment pension providers could distort the market, put millions of people saving through auto-enrolment at a disadvantage, and cause pension providers to increase their charges for all members.
Patrick Heath-Lay, CEO of B&CE, said:
“As a not-for-profit organisation, the rebate is an example of how we’re using the money we make to directly benefit our members, helping them to save thousands more towards their future.
“We believe that banning combination charging structures like ours would be a backwards step as it will remove incentives for saving more towards retirement and will unfairly target savers in workplace pension schemes.
“We’re very proud of the fact that we already give back £1 million a month – a figure only set to increase – and we think that it’s only fair to our members that we’re able to continue to do so in the future.”
Note to editors
- The People’s Pension is a leading workplace pension scheme from B&CE, serving more than five million pension savers across the UK, with more than £17 billion assets under management. With no shareholders, it uses profits to help people build stronger financial foundations for life.
- B&CE is a not-for-profit organisation that offers workplace pensions, employee accident cover and employee life cover.
- In November last year the DWP published the results of its consultation Permitted charges within Defined Contribution pension schemes and announced that plans for introducing a universal flat rate were being put on hold until further notice.
- The level of rebate a member receives depends on how much is in their pension pot. They’ll receive a rebate on the management charge of between 0.1% and 0.3% based on the value of their pension pot when the rebate is calculated.
For the part of their savings:
up to £3,000, no rebate is given
over £3,000 and up to £10,000, we’ll give back 0.1%
over £10,000 and up to £25,000, we’ll give back 0.2%
over £25,000 and up to £50,000, we’ll give back 0.25%over £50,000, we’ll give back 0.3%.
5. For a full breakdown of our charging structure visit: https://thepeoplespension.co.uk/member-annual-management-charge/
Assuming a member aged 23 with a starting fund of £15,000, a salary of £30,000 per year, paying 8% gross contributions, investment returns of 5% per annum, inflation of 2.5% per annum, and a retirement age of 68, this could add up to an extra £26,853.11