When NOW: Pensions entered the UK market we thought long and hard about our charges for members. We wanted them to be simple, transparent and above all equitable.
A flat AMC can be highly corrosive over a lifetime of saving and as a result we took the decision to combine a low annual management charge of 0.3% with a pounds and pence monthly administration charge. This approach is designed to be easy for members to understand.
We believe that all members, regardless of the size of their pension fund, are entitled to receive the same level of service and access to the same high quality investment expertise.
We do not believe it is appropriate for all members to pay a blanket percentage charge determined by how much they have invested in their pension fund for two reasons.
Firstly, it’s impossible to identify how much of the charge is used to pay for investment management, and how much for scheme administration and communication.
Secondly, the larger the member’s fund, the higher the charge. This leads to the cost of running the scheme for members with small funds being significantly subsidised by those with larger funds.
The NOW: Pensions philosophy is that a fair charging structure means that members pay for what they receive. We therefore separate the cost of administration from the cost of investment management.
The maximum monthly administration charge that members of NOW: Pensions will pay is £1.50 (less than the cost of a cup of coffee). This covers all the costs of running and communicating their pension arrangements. The investment management charge of 0.3% is the lowest published charge in the auto enrolment market.
It means that members pay a very small fee for a sophisticated and well managed investment proposition. As members continue to save with NOW: Pensions, and as auto enrolment minimum contributions increase, their charges as a proportion of their pension pot will reduce, meaning that those who save with us over the years will see their overall equivalent charge reducing.
Some of those members who stop contributions in the early years – either because they leave their employer, or because they opt-out – could potentially be in a position where the administration fee is higher than the investment returns achieved by the scheme.
We therefore encourage leavers to consolidate their pension funds in order to reduce their overall charge. We do not charge for transfers either into or out of the Scheme. Before the UK government introduced the charge cap for auto enrolment schemes in 2015, it took time to understand and analyse charging structures which clearly split out administration and investment costs.
The final regulations contained specific parameters for schemes which either charge a separate administration charge, or a separate contribution charge. The final regulations clearly explained that a charging structure such as that of NOW: Pensions may charge up to 0.5% as an annual management charge and remain comfortably within the charge cap.
We charge 0.2% less than the charge cap. An environment where members pay for what they receive creates sustainability for the scheme itself, and that is to the benefit of all members – past, present and future.
It is clear that a number of other business models that are used for auto enrolment today will never reach the scale necessary to break even.
Without charges that cover costs, a scheme is not sustainable, leaving members in an unstable position with regard to the the future of their pension provider and their pension arrangements.
Our member charges are fair. They are clear. They are the lowest published charges in the auto-enrolment market for members who save over the medium to long term