Pressure of stakeholder has led to a fall in AVC charges to 0.7% per year, according to annual survey from hewitt bacon & woodrow
Charges on AVC schemes have come down to 0.7% per year and fund choice is widening due to the competitive pressures on stakeholder pensions, according to Hewitt Bacon & Woodrow's annual AVC survey.
However, the group believes the AVC market is becoming badly affected by such pressures and the presence of too much choice may have a detrimental affect on investors.
Chris Cairns, of Hewitt Bacon & Woodrow, said: 'Last year, charges were 0.8% on average and have dropped to 0.7% this year, well below the maximum stakeholder charge. These levels are beneficial to scheme members but provide lean pickings for providers.'
The explosion in the number of funds available, as many adopt a multi-manager strategy, offers good diversification for both trustees and members but this increased choice does have drawbacks, Cairns said.
The group questions who is choosing these external managers for the schemes, the selection processes and whether fund performance is properly monitored and changes made when necessary.
'Our biggest concern, though, is the danger of confusing members by offering them an uncontrolled choice,' said Cairns.
'The average scheme has 11 separate AVC investment options and one provider offers nearly 300 funds. Experience in the US suggests that, in the face of excessive choice, many members will simply defer taking action.'
The annual survey also found that partial concurrency with stakeholder pensions has failed to attract many takers, with trustees reluctant to promote the concept. Under stakeholder, those earning less than £30,000 per year can pay into a stakeholder pension as well as, or instead of, an AVC.
Cairns said the group believes the situation is unlikely to change unless the regulatory regime is eased further.
Negatively impacting the AVC market is the increase in administration problems among providers. Hewitt Bacon & Woodrow found this was caused in part by the fallout from Equitable Life and the integration of systems with stakeholder pensions platforms.
Cairns said schemes have experienced a fall in the levels of administration and service received in relation to AVCs, with the average rating given by trustees down 20% on last year's figures.
She added: 'It is a sad reflection of the state of the market that, despite all its problems, Equitable Life's administration rating was better than half the providers we surveyed.'
Some of the problems arose from the fact many providers were left scrambling as the need to replace Equitable Life put many administrative systems under strain.
According to the annual survey, internet capability is now viewed as an important element of many provider's AVC arrangements, with half of the providers in the survey offering members the ability to carry out AVC transactions online.
However, while providers are anxious to encourage online usage as it facilitates working within the 1% world, many schemes appear reluctant, Cairns said.
Only 3% allow members access to their AVC online and some 40% say they have no plans to offer online access in future, she added.