Employers have managed to keep active scheme member fees steady while scrapping higher charges for deferred members, after one provider agreed to swallow the cost of next year's ban.
In March, the government announced active member discounts would be banned from April 2016, triggering concerns it would result in higher active member fees to balance the cost.
The fact is that probably the scheme that [employers] have had has been artificially cheap in the past because companies tend to focus on the active member charge
Laith Khalaf, Hargreaves Lansdown
The compliance manager at one large financial services company, who asked to remain anonymous, said it managed to extend its scheme’s flat annual management charge of 0.42 per cent.
“There was no cost to us and employees were benefiting from a lower charge,” said the spokesperson. Employees who left the company were previously charged an AMC of 0.75 per cent.
The scheme’s governance committee asked its provider, Friends Life, to scrap its AMD after the release of the Office of Fair Trading’s report into workplace pension charges. The provider has since offered this to all existing clients.
“Friends Life no longer offered that sort of arrangement with active member discounts to new clients,” the scheme spokesperson said. “So that was something we felt uncomfortable with.”
The single AMC rate came in effect on January 1 2014.
The CBI has also criticised the government’s decision to ban AMDs on the grounds they are an important employee benefit.
Laith Khalaf, head of corporate research at platform provider Hargreaves Lansdown, said: “The fact is that probably the scheme that [employers] have had has been artificially cheap in the past because companies tend to focus on the active member charge,” adding this will likely result in higher AMCs across the board.
Friends Life announced earlier this month it was moving its existing schemes to a flat AMC, subject to a minimum of 0.35 per cent.
Giving schemes this option will have a negative financial impact on providers, said Dominic Fryer, head of strategy, corporate benefits at Friends Life. But he added: “We are asking [them] to sign up to a five-year contract.”
Other providers have not yet confirmed whether they will offer existing employers with an AMD structure in place the opportunity to switch to the current active rate.
Scottish Widows and Standard Life said they were working with employers to ensure compliance with the government requirements.
A Scottish Widows spokesperson said it was “determining the best means of helping employers reshape existing arrangements and will communicate with them shortly”.
