When considering whether to opt out of personal accounts, a two tier charging structure is no more likely to influence decisions than a single charging structure, according to AEGON research.

AEGON says its findings should allay concerns that people will object to a dual charging structure, allowing the Personal Accounts Delivery Authority (PADA) to focus on more relevant criteria when choosing the personal accounts charging structure.

AEGON believes the long term sustainability of the scheme should be a top priority in order to safeguard the security of member benefits and minimise taxpayer subsidy. The company urges PADA to choose a charging structure that will address this, rather than opting for a highly capital intensive single fund based charge structure. The company says the best way to ensure financial sustainability is by matching income from charges with costs incurred. AEGON suggests PADA adopts a structure combining a modest percentage contribution charge with a fund-related ‘annual management charge’.

In its research AEGON showed two groups of consumers information about personal accounts and asked them how likely they were to remain in the scheme. The groups were given identical information apart from charge structures. One group was told 0.5% of the value of their pension fund would be deducted each year, the other was told charges would be a 5% deduction from contributions, plus a 0.3% deduction from the fund each year.

Charge structures were only the seventh most popular reason for opting out of personal accounts, with a combined total of 6% across both groups. The top reason for opting out, by a large margin, was people preferring to make their own arrangements for retirement saving (37%). Of the relatively few people who chose the charging structure as their reason to opt out, this was slightly more common among people shown the single charging structure.

Steven Cameron, head of business development, says:

“Some have voiced concerns people will be put off by a dual charging structure and, as a result, will opt out of personal accounts. But our research shows this just isn’t the case. Firstly charging structures are not a major determinant of behaviour. And secondly people offered a dual structure were no more likely to opt out than those offered a single charge structure. This is good news as it gives PADA the green light to focus on the things that matter, such as the security of member benefits, and choose a charging structure that makes personal accounts financially sustainable.

“In the current climate people are more risk averse and want to know their money is safe. The long term financial security of the personal accounts scheme should be paramount and a dual charging structure is the best way to achieve this. Choosing a flat annual management charge will put the scheme under huge financial pressure.

“Personal accounts are too high profile to fail so if things go wrong either charges will have to rise or the taxpayer will have to step in to subsidise it. The Government can’t afford another crisis of confidence in the savings arena.”

Notes to editors

• AEGON’s research was carried out by BMRB between 9 and 15 October 2008. BMRB interviewed 634 people aged between 20 and 65 who had not yet retired. Full details of the research can be found at http://dms.aegonse.co.uk/download/0bcb5d221a9b87b01f1e60309b419874
• Respondents were shown a single page showcard explaining the basics of personal accounts. Half the respondents were shown a document with a single annual charge of 0.5%. The other half were shown a contribution charge of 5% of contributions and an annual charge of 0.3%. The documents were otherwise identical.
• In its consultation on charging structures PADA proposed a number of charging options, and respondents suggested several more. Two of the options, an annual management charge and a contribution charge plus an annual management charge, received significant support from respondents. The annual management charged was supported by those who believe its perceived simplicity and transparency would encourage participation, and the contribution charge plus annual management charge by those who regard it as the most sustainable option with the flexibility to deal with a range of business risks.
• 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 within the agreed structure when the design of the personal accounts scheme is finalised, costs incurred have been identified and contracts have been put out to tender.
• In the UK AEGON offers pensions, life insurance, asset management and financial advice to around 2 million customers. AEGON UK has assets under administration of £51 billion and employs approximately 4,900 staff.
• AEGON is one of the world’s leading insurance groups with approximately 30 thousand employees world wide and 40 million customers in the Americas, Europe and Asia. AEGON's revenue generating assets totalled EUR 344 billion at June 30, 2008.

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