Around 95% of members are in modern or “currently marketed” products.
If you are in a currently marketed product, the only direct charge you pay for your workplace pension is an Annual Management Charge (AMC). The AMC is made up of a charge for administering your pension and a charge for the investment you have selected. Most of you will be invested in the default investment fund chosen by your employer. Around 95% of all members in modern products are in the default fund.
The FCA introduced a mandatory cap on the charge members pay when they are enrolled into their workplace pension. This means that nobody joining a workplace pension will pay more than the maximum of 0.75% each year as an AMC (or 75p for each £100 invested). Aviva has provided a breakdown of charges being applied under their currently marketed policies, and it is clear that many of you are paying less, often significantly less, than 0.75%.
There are reasons why some members may pay more than the 0.75% charge cap:
Overall, we are satisfied that the vast majority of members receive very good value for money for their workplace pension scheme when investing in one of Aviva’s actively marketed products.
There is an obvious contrast when looking at much older non-marketed policies. Only a very small number of these (around 15,000 members) were used for auto enrolment, and so only these members’ have the charge cap applied.
Source – Aviva
While some members are benefitting from actions Aviva has taken to reduce charges, we want to see more done to reduce charges further. Aviva has started a programme to transfer members in older products to more modern, lower charging products. More detail of this can be found later in our report. There is still a differential between charges for some older products and newer products even though the highest charges on some older contracts have been removed over the last 5 years. We would like to see the transfer programme into new contracts accelerate to further improve outcomes for members in these older products.
There are other charges impacting some savers in older products. A relatively small number of members still have higher charging units applied (often called “Capital” or “Initial” units). Aviva has now removed these charges for any members over the age of 55, but they remain for younger savers.
We wrote to Aviva’s Conduct Committee in 2019 requesting them to consider the removal of higher charging units for members aged under 55. At that time, they stated that they would not make the changes, but they would keep the matter under review.
With that in mind, we wrote with a stronger challenge again this year and we are delighted to be able to report that Aviva has now agreed to remove these higher charging units and the exit charges associated with them. This will benefit around 30,000 members. We appreciate that this is a costly exercise for Aviva, but we expect them to make the changes as soon as is reasonably possible.
The IGC has made significant efforts to get charges reduced over the past 5 years.
Some of the activity has been driven by regulation. Other activities are as a direct result of the challenges the IGC has made to Aviva.
The FCA required all firms to remove Active Member Discounts (AMD) from workplace pensions by April 2016. Members who leave service of their employer cannot therefore be charged a higher Annual Management Charge than active members.
Monetary policy fees, an administration charge (paid monthly or yearly), were removed for all active members in 2016, and all leavers in 2017. Over 75,000 members have benefitted from this charge removal.
Paid Up Penalties were removed from some older products meaning members were no longer charged a fee for stopping their contributions. 3,000 members benefited from this change.
Many thousands of customers have therefore benefitted from these changes, and a further 30,000 members aged under 55 will benefit from the removal of higher charging units in older products.
