AJ Bell’s chief executive said some platforms reduced or removed charges to “commercially suicidal levels” when the pension freedoms were introduced.
The at-retirement reforms came into effect on 6 April 2015, allowing retirees access to their pension savings as a lump sum from age 55.
FTAdviser reported a number of platforms reduced charges in 2014 and 2015 in anticipation of the pension freedoms, including Cofunds, Aviva, Axa Wealth, Aegon, Standard Life and Old Mutual Wealth.
In April 2014, Cofunds’ head of marketing admitted that adviser retention was “part of the mix” in its decision to drop its annual administration charge and set-up fees on pension accounts, having already ditched its pension account annual administration charge, cut its drawdown set-up fee to £100 from £120 and trimmed annual drawdown charges to £120 from £150.
In the same month, Aegon changed its UK fee structure, claiming the changes would “help advisers and customers navigate the widening range of retirement options”.
In July that year, Aviva scrapped the £100 administration charge on its drawdown product, with a spokesperson recently telling FTAdviser: “The vast majority of Aviva’s pensions do not carry early termination charges.
Also in July 2014, Zurich reduced platform fees, while three months later Old Mutual Wealth removed its annual pension drawdown fee and scrapped the current minimum charge on its platform.
By November 2014, Axa Wealth had removed regular charges on its Pension Investment Account and drawdown services available via the Elevate platform, then in March 2015 Standard Life said it would remove the charges currently applied to its flexible drawdown product via its wrap.
Speaking to FTAdviser, Andy Bell said some platforms have been buying scale with no regard to profitability.
“For example, when pension freedoms came out some platforms were reducing or removing charges to commercially suicidal levels to take advantage of the excitement around pension freedoms and build scale.
“Pension freedoms required significant system changes and different operational models and it didn’t feel sustainable to me for those firms to be going out and saying ‘actually we’ll be give you this as a carrot - we won’t charge for this’.
“All business models are different, but it just felt a strange reaction for platforms that are losing money to go and write business that they will never make any money on.”
Mr Bell suggested the industry will see increasing focus on the commercial models of platforms from both the regulator and advisers.
“Advisers will want to look under the bonnet of a platform when doing their due diligence and look at the sustainability of the business, not just the headline numbers in the marketing brochure.”
Daren O’Brien, director at London-based Aurora Financial Solutions, agreed that platforms have massively reduced their fees to gain market share.
“I can’t see how they will make a profit in the long run. Maybe they are buying up business to prevent other players in the market from gaining market share only to put up their charges at a later date.
“I wonder why exit charges are now appearing - a couple of years ago you never used to hear about exit charges on pensions - I wonder if it is something to do with them pricing pensions so low that they have to include hidden exit charges.”
ruth.gillbe@ft.com
