NOW; the muscly mastertrust with over 1.5m members, isn’t taking Pension Bee’s stinging assessment lying down. Rob Booth, has gone to some trouble to put the other side of the story.
As a bag-carrying NOW fan – I’m torn – because I love Pension Bee too! What can I do – caught in the “bee-loud glade”, but publish Rob Booth’s defence, which has previously only appeared on NOW’s member website
Rob Booth, Director of Investment & Product Development, NOW: Pensions
Earlier this week PensionBee published its “Robin Hood Index” which suggested that NOW: Pensions was one of the most expensive pension providers.
The calculations they cited are inaccurate and misleading as they are based on 92 people with very small pots, transferring out – which is what we suggest they do. In their sample, c.40% of the values were below £100 and more than half were below £50.
When NOW: Pensions entered the UK market in 2011 we spent a lot of time thinking about how to structure our member charges so that they are simple, transparent and above all equitable.
Most pension providers charge a flat annual management charge based on percentage of the fund. However, we took the decision to combine a low investment charge (0.3%) with a pounds and pence monthly administration charge – £1.50 per month for all members.
By structuring the charge in this way, it’s clear to members how much they are paying for investment management and how much for scheme administration and communication. By structuring the charge this way, it also means that those with larger pension pots aren’t overly subsidising those with smaller pots.
As members continue to save with us and as auto enrolment minimum contributions increase, the charges as a proportion of their pension pot will reduce which means that those who save with us over a number of years will see their overall equivalent charge reducing.
To illustrate, we compared our charging structure with those of PensionBee.
PensionBee offer three charging structures:
- The PensionBee “Future World” Option charging 0.95% has higher charges than NOW: Pensions for pots over £2,770.
- The PensionBee “Tailored” Option – their most popular fund charging 0.7% has higher charges than NOW: Pensions for pots over £4,500.
- The PensionBee “Tracker” Option charging 0.5% AMC has higher charges than NOW: Pensions for pots over £9,000.
All three PensionBee options offer a reduced charge for pots over £100,000. Despite this, their “Tailored” and “Future World” options remain more expensive than NOW: Pensions, while the “Tracker” option becomes less expensive than NOW: Pensions once pot size exceeds £964,000, which is almost the lifetime allowance.
We encourage leavers to consider consolidating their pension funds as it may be more cost- effective and we don’t charge for transfers 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 so none of our members are paying above the charge cap. See p6 of DWP’s charge cap guidance.
This dual charging structure is very cost efficient over the long term as the following illustration taken from the Defaqto report on workplace pension default funds illustrates.
Tweeting on social media; Pension Bee’s CEO Romi Samova replied
1/9 – Pension scheme charges need to appropriately reflect the reality of the customer base.
— Romi Savova (@romisavova) August 1, 2018
I’m very glad you published this, Henry, as it is only fair to do so. I had grave misgivings about the ‘Pension Bee’ news release as it didn’t provide much detail or context.
This is, however, an important issue (as you have covered before) – what to do with old pension funds – but it is never as simple as ‘old bad, new good’, period. I find that the amount of analysis required to justify bringing everything under one roof can be onerous. Sure, it’s a bit easier for those over age 55 due to the drop in exit charges, but still involves acquiring projections for the existing plans and comparing them to any proposed new arrangement. I have said this before, but a lot of old PPPs (and FSAVCs, EPPs, etc.) have ‘loyalty bonus’ mechanisms that can be hard to understand and ‘rider’ benefits such as waiver of contribution and life cover – like the plans you arranged in the mists of time – I had a client who was on WOC for 23 years (although he sadly died not so long after retirement, but left his widow in a comfortable position financially with an RPI-linked annuity) and, although the number of ‘rider benefit’ claims are likely few, they will surely rise as the cohort of policyholders age.
This may all sound unimportant to the generation of people who are most likely to be attracted to businesses like ‘Pension Bee’ and its competitors, but we arranged policies 25-30 years ago when the world was a very different place and did our best with the tools that were available then. On-line functionality and ‘sexy’ DFM arrangements on your smartphone mean nothing should you get sick or die!
Then there is the ‘trivial pot’ triple allowance. I have today written to a lady in Shropshire with less than £200 in an old GPPP and suggested that she might ‘cash-in’ or transfer to any current arrangement, but I need to know more about her before I can be categoric. There is no way I can charge her anything for providing advice (unless she agrees to) – but there you go!
To be clear, I’m not being critical of ‘Pension Bee’ as they have their business model and we are in a commercial marketplace. However, I’ll be honest and say I’d like to have £500m (or whatever figure you pick) ‘under advice’ at 0.95% as the £4,750,000 fee income would be very nice!