Mastertrust transfers and charges blasted in ‘worst in pensions’ study

The findings have come at a crucial time for the sector, as schemes prepare to seek mastertrust authorisation from the Pensions Regulator in October this year.

Now Pensions had the highest charges of any provider, with its fixed charge representing an average annual levy of 62.1 per cent for the pots surveyed by pensions tech company PensionBee.

Unless you transfer it out then that pot is going to turn to dust over the years

Ian McQuade, Muse Advisory

Meanwhile its Robin Hood Index showed that defined contribution transfers carried out by Xafinity, now part of XPS Pensions, took an average of 52 days to complete, albeit from a sample of six. Now Pensions was second worst at 45 days.

Both providers disputed the validity of the findings.

Is the charge cap really 0.75 per cent?

DC schemes eligible for auto-enrolment are subject to a charge cap of 0.75 per cent of pot value. But the PensionBee research showed that the fixed costs charged by some providers, while offering great value for bigger pots, can far exceed the cap for average pot sizes.

Now Pensions’ charging structure has been approved by the Department for Work and Pensions.

All of the four other 'worst providers' exceeded this annual limit, although none came close to that revealed at Now Pensions.

It is the latest in a series of blows for Now Pensions. The mastertrust was fined in February for problems with legacy administration, and came bottom of default fund performance league tables compiled by Defaqto in April.

Romi Savova, CEO of PensionBee, said: “The charging structure is just not appropriate to the membership base.”

As one of the mastertrusts catering for the lower-income end of the market, the £18 fixed element of Now Pensions’ member fee can be a large portion of the total pot, even without considering the 0.3 per cent annual investment charge.

Fixed fees can eat up pots

Now Pensions disputed the findings, with a statement reading: “PensionBee’s calculations are inaccurate and misleading as they are based on 92 people with very small pots, transferring out – which is what we suggest they do.”

It compared its fees to funds provided by PensionBee, arguing that its structure was cheaper for any pot over £9,000.

However, the provider revealed in February that its average pot size is £385, lower even than the average pot size in the PensionBee sample, which stood at £428.

“If Now Pensions has alternative figures they should definitely publish them,” said Savova.

Ian McQuade, director at Muse Advisory, said it was not clear how the firm had arrived at its 62.1 per cent finding, but conceded that even for the average pot size of £385, a fixed £18 fee was incompatible with the spirit of the charge cap.

“Unless you transfer it out then that pot is going to turn to dust over the years,” he said. “If you were a sponsor looking to select a mastertrust provider that should be something that you are considering and taking into account.”

Digitisation improves transfer times

Transfer times were also highlighted as a major problem by the index, with five mastertrusts taking more than 40 days to complete, according to the PensionBee findings, which had a minimum sample of five transfers.

“A lot of these administrators are not sufficiently digitised in terms of their records,” said Savova, saying some still use Excel spreadsheets and paper filing.

Members “have a right to expect that the administration will be handled in a 21st century manner”, she said, noting that some providers are beginning to improve by using Origo’s electronic transfer service.

In fact, Now Pensions has now made this switch, and said in its statement that it expects transfer times to be slashed.

XPS Pensions said in a statement that it thought the sample of six transfers was far too small.

Paul Cuff, co-CEO of the company, said: "Around half of the time between initial contact and the transfer being paid, the process was out of our hands – for example, members choosing what to do once in receipt of a quote.”

“We are dedicated to improving member outcomes and are supportive of what PensionBee are trying to achieve in terms of raising standards, but care needs to be taken on research like this when the sample size for our firm is so small,” he said, adding that administrators also needed to check for scams.

Members poorly informed

If mastertrusts are failing to execute transfers as promptly as members would like, there is also evidence that across the industry providers and schemes are failing members approaching retirement.

A survey by Lemonade Reward found that 83 per cent of members do not understand freedom and choice and the same percentage do not know when they will retire.

The report suggested that merely sending members towards Pension Wise or similar sites was not enough to properly inform members, and managing partner David Pugh said resource constraints were not an excuse.

“Smaller schemes with tight budgets should focus on understanding their audience in order to produce engaging targeted communications through all available channels, such as email and web,” he said. “Group presentations are also a good way of communicating to large audiences.”