How West Midlands reveals AVC exit charges to members

WMPF is imposing charges at the request of its administrator, Prudential, to discourage new members from exiting AVCs within the first five years of investing.

The local authority scheme has made efforts to ensure the fines are effectively communicated to ensure the costs do not come as a nasty surprise to members.

Prudential is also imposing the charges on the Universities Superannuation Scheme and the Northern Ireland Local Government Officers' Superannuation Committee.

Mark Crutchley, communications manager at WMPF, said: “There have been no problems with charges being introduced, as long as they are transparent and the members can see clearly whether they would pay a charge, and if so, how much."

In fact, there had been a "sudden flurry of activity" of people wanting to pay into AVCs as a result of the communication, he added.

In the current economic climate, drawing money out of savings early could prove tempting to members. Face-to-face communications can help them understand the changes to the charging structure.

But schemes should make sure any messages are based upon member research to ensure they are at a level appropriate to the understanding of the workforce, according to communication experts.

WMPF's exit penalties 

The fund said the early-exit charges will be applied on a sliding scale spanning the first five years of first becoming an AVC member.

Exiting in the first year of setting up an AVC will incur a charge of 15%; the second year, 10%; the third year, 8%; the fourth year, 6%; and leaving in the fifth year, a 5% fee.

The scheme's website stated: "Prudential has introduced this charge in response to a significant increase in short-term contributions where the annual management fees collected do not cover the initial set-up costs. 

"Against this backdrop, both the fund and Prudential believe this solution to be fair to all members, as it ensures that neither longer-term nor existing members are impacted."

Employers should always carry out research to assess the workforce's level of understanding

Hannah Clarke, Ferrier Pearce

The fine will apply to members who join the scheme from August 19 this year. 

Crutchley said: “As soon as Prudential informed us about the charges we asked how they would be communicating the charges to members.”

He said WMPF had written to all its membership to communicate the change.

Schemes can also enquire about the lead time of changes administrators intend to employ when communicating charges.

The USS ensured its multiple employers were kept in the loop by email, highlighting the need to communicate the charge, and the window of opportunity, clearly to members.

Colin Busby, communications manager at USS, said: "We agreed a form of words Prudential's call-centre staff would use if somebody got in touch in the period before the implementation of the charges." 

Busby said the scheme would have preferred a longer window to communicate but it was set by Prudential and not the trustees.

The USS used member presentations and face-to-face sessions at its university employers to explain the changes and so minimise member resentment.  

Why communication is vital

Schemes that fail to communicate could breed distrust with AVC holders.

Members who are retired or transferred without being aware of the changes could seek compensation from the scheme for the loss of funds resulting from the charge.

Hannah Clarke, pensions communications manager at Ferrier Pearce, said it was unlikely Prudential was acting in isolation, as administrators needed to ensure they turn a profit in the economic environment.

“Employers should always carry out research to assess the workforce's level of understanding”, she said.

She added communications should be clear, open and transparent to encourage saving and trust in the scheme.