Now Pensions castigated as master trust competition turns nasty
Data crunch: Master trust Now Pensions has published an index claiming its charges have the least drag on an average defined contribution pot, unleashing in the process a barrage of criticism of the provider’s own charging structure and administrative headaches.
The index showed that for someone earning £28,000 and paying a monthly contribution, a zero-fee arrangement would deliver a pot of £76,380 over 20 years.
Now’s charging structure, which levies a 0.3 per cent annual fee and a flat £1.50 administration charge each month, would result in total fees paid of £2,956. The highest annual percentage fee, charged by Smart Pension, would cost a member £6,636 over the period.
The strength of the authorisation regime will be determined by which providers do not make it through
Similar results were obtained with a single large contribution of £28,000, albeit with the total charges larger across the board. Now’s director of policy Adrian Boulding said: “We hope our analysis will encourage employees to shop around for the AE provider that suits them best and look at fee structures over the long-term to ensure they are getting the most out of their hard-earned money.”
Competitors criticise flat fees
However, the research drew an instant and irate response from both competitors and one independent consultant, who drew attention to issues including the eroding impact of Now Pensions charges on small pots.
PensionBee, the pension finder, consolidator and provider, has previously warned the Work and Pensions Committee that Now Pensions is attempting to “pull the wool over your eyes” on charges. It suggested that the committee ask what proportion of the master trust’s members have seen costs higher than returns.
Indeed, our analysis of a deferred member with Now’s average pot size of £500, shows that even with annual returns of 5 per cent, the pot would be entirely eroded by charges within eight and a half years.
Romi Savova, chief executive officer at PensionBee, said: “It is ludicrous for Now Pensions to suggest they are a cost-effective pension provider. As per our correspondence with the Work and Pensions Committee, Now Pensions routinely erodes the value of their members’ pensions to £0 – an outcome that is inconsistent with the objectives of auto-enrolment.”
It is not clear whether Now Pensions ever responded to the select committee, when it posed the questions suggested by PensionBee.
Neither was it just competitors who were angered by the research, with Barnett Waddingham head of workplace wealth Mark Futcher calling out “the absolute audacity” of Now Pensions.
He drew attention to the provider’s long-running struggle with administration, which resulted in a fine from the Pensions Regulator last year. In February this year the regulator confirmed that the issues were largely corrected by an overhaul of its administration.
However, a few contributions are still outstanding (related to employers that have become insolvent), and Mr Futcher said that members cannot yet “be confident they have got the right sums in their pot”.
He also drew attention to the default fund’s investment performance, which has lagged competitors in several independent reports in recent years.
“Both of those factors put a question mark around the quality and the strength of the trusteeship,” Mr Futcher said, stressing that he filters master trusts by factors determining quality of proposition when helping clients choose, only looking at costs once the final shortlist has been drawn up.
He said he hoped authorisation would improve the value for money provided by the master trust sector as a whole, adding: “I’ve spoken to the regulator and said the strength of the authorisation regime will be determined by which providers do not make it through.”
Master trusts in war of words
Smart Pension, ranked the worst on fees by Now Pensions, proved equally irate at the release of the index.
A spokesperson said analysis had been carried out “at such an acute angle so as to throw the best possible light on Now Pensions – and it should only be viewed from this perspective”.
The spokesperson continued: “If you look at any piece of recently published independent performance analysis, net of fees, Now is firmly at the bottom.”
Adrian Boulding, director of policy at Now Pensions said: “We have produced the Now Pensions AE Cost Comparison Index to highlight the fact that pension saving is a long-term goal and should not be judged simply by looking back over the first few years of very low contributions.
“At Now Pensions we encourage people who have left small pots behind to transfer them to their new provider.”