Pensions  

Advisers voice concern over ‘problematic’ AMDs

The department for work and pensions found a potential rift between providers and advisers who responded to its Landscape and Charges Survey 2013 on the issue of AMDs.

While some providers felt that AMDs helped to promote consistent saving among members, most advisers felt that former employees should not pay more if they were no longer receiving “the same level of service”.

The 189-page report stated: “A number of advisers reported that members were not always aware that their charges could go up if they left their employer and considered this kind of discount to be increasingly problematic, given that people change employers multiple times during their working lives. Most, therefore, felt that the majority of people would end up being penalised by the current system.”

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But the report did convey the views of an unnamed provider, which argued that many large employers taking advantage of AMDs were using their “bargaining power” to drive down charges. That provider suggested it would be unreasonable for a former employee to benefit from that negotiating clout through lower charges.

The report rekindles the debate over whether the government’s proposed ban on AMDs, recommended by the Office of Fair Trading in its market probe in September, will materialise.

Steve Webb, pensions minister, announced last month that a charge cap on schemes was unlikely to happen until April 2015.

Last week, Rachel Reeves, shadow secretary of state for work and pensions, wrote to the prime minister to ask whether the idea for charge limits had been abandoned altogether.

Ros Altman, independent pensions expert, said: “Removing AMDs is even more urgent than charge caps, as the government’s ‘pot-follows-member’ legislation cannot help those with career breaks, particularly women.”

Key statistics

• Trust-based schemes charge 0.4% more and contract-based schemes 0.2% more, when advisers working on commission are involved.

• Around two-thirds of trust-based schemes used an adviser in 2013.

• 85% are large trust-based schemes and 44% are going down this route.

• Employers with contract-based schemes are more likely to use commission-based advice – 41 per cent – compared with a quarter of trust-based schemes.

Adviser view

Mark Hoskin, partner at London-based Holden & Partners, said: “AMDs have been driven by advisers pitching for business. They want to appear more low-cost and competitive by dropping charges for active members.”

Charge level per year% reduction in final fund
0.5%13%
0.75%19%
1%24%
1.5%34%