AEGON is calling on the personal accounts delivery authority (PADA) to make the long term financial security of the personal accounts scheme top priority when recommending the charging structure for personal accounts.

AEGON believes that unless PADA and the Government choose a charging structure that matches charges received and costs incurred they will put the security of member benefits at risk and increase the level of taxpayer subsidy.

Ahead of PADA’s summary of responses to its charges consultation on 15 July, AEGON points to PADA’s own analysis and independent modelling by the Pensions Policy Institute which show some form of upfront contribution charge is needed to ensure financial sustainability. AEGON believes a charging structure combining a modest percentage contribution charge with an annual management charge is the best way to safeguard member interests and minimise taxpayer subsidy.

AEGON says a flat annual management charging structure would put the personal accounts scheme under great financial pressure and could mean charges having to rise in future, more taxpayer subsidy or, in an extreme case, the scheme closing.

Steven Cameron, head of business regulation, comments

“PADA must give priority to the long term financial security of the personal accounts scheme and a dual charging structure is the best way to achieve this. In the current climate people are more risk averse and want to know their money is safe. We can’t afford another crisis of confidence in the savings arena.

“Personal accounts are too big to fail so the taxpayer will ultimately have to step in if things go wrong. To reduce the risk of this happening the charging structure chosen must match when costs will be incurred as closely as possible.

“People who are arguing for stakeholder-style charges for personal accounts really need to come up with an answer to the stability and security points. Does the taxpayer really want to provide ongoing subsidy?”

Notes to editors

• The Government has already provided substantial funding to PADA. This is likely to be debated shortly in the House of Lords. It's important to have full transparency and accountability and a clear point beyond which Personal Accounts must be self financing.
• PADA has been tasked with setting up the personal accounts scheme. It will have a two-stage role, advisory and executive. During its advisory stage, PADA will provide advice and make recommendations to the Government on various options such as payment systems, account maintenance and member communication. Sometime in 2008, PADA will move into the executive stage which is expected to run to 2012. It will then take on responsibility for building the infrastructure for personal accounts. PADA's full responsibilities include minimising the burden on employers, minimising the impact on high-quality pension provision, optimising participation and contributions in the target group, setting the level and shape of charges and an appropriate range of fund choices.
• PADA launched its charges consultation in January 2008. The consultation was about the structure, not the level, of charges and closing date for responses was 22 April 2008. PADA is initially considering four options – annual management charge (amc), contribution charge, joining fee and contribution charge with amc. It asked respondents to assess possible charging structures against criteria of (fairness of) retirement outcomes for members, participation and sustainability. When it has considered responses PADA will make recommendations about the most appropriate charging structure to the Secretary of State for Work and Pensions.
• There is strong potential for a timing mismatch between charges received and costs incurred. PADA faces upfront costs in establishing the personal accounts scheme which may only be recouped over the longer term. AEGON believes undue focus on a flat annual management charge structure or on keeping charges low at the outset could build up financial pressures for the future which could push up the costs for members at some later date.
• PADA will make recommendations on charging levels when the design of the personal accounts scheme is finalised, costs incurred have been identified and contracts have been put out to tender.
• PADA will issue further consultation papers on investment options and scheme rules later this year.
• AEGON UK has assets under administration of £53.2 billion and employs around 4,500 staff. AEGON UK is part of the AEGON group, which is one of the world’s largest insurers and has assets under management of £245 billion.

For further information

Steven Cameron
Head of Business Regulation
AEGON
T. 0131 549 2719

Margaret Robertson
AEGON
T. 0131 549 6798 | M. 07740 897527