The Government set out its intention to introduce major reforms to the UK pension system in a White Paper in May 2006. These include substantial reforms to both state and private pensions. The Government is seeking views on the appropriate charging structure for Personal Accounts. To date, this issue has not been extensively debated, though there are important issues for future Personal Accounts holders and the industry providers who will be involved in operating aspects of Personal Accounts.

The charging structure in Personal Accounts could take a number of forms. Options include an Annual Management Charge (AMC), a joining fee, an annual flat fee, a contribution charge, and combinations of these alternatives. This paper investigates the impact of five alternative charging structures for Personal Accounts on:

  • Different types of individuals, with different work patterns, earnings and contributions to Personal Accounts.
  • The financing of Personal Accounts, such as when income from charges becomes equal to the cost of running the system.

This research was sponsored by AEGON, the Department for Work and Pensions (DWP), and Standard Life. The PPI is grateful to these organisations for their support in producing this work.


Chapter one describes the Government’s proposal to introduce a new system of low-cost Personal Accounts and explores different options for how the charges could be levied.

Chapter two outlines the Annual Management Charge and how this related to revenue.

Chapter three considers a combination of a slightly lower AMC of 0.45% and a joining charge, where members pay a fee equal to three months’ worth of their contributions for their first year of their saving.

Chapter four considers having an annual flat fee for all people and the impact this would have on individuals. 

Chapter five explores having an annual charge related to contributions made and how this might affect fund value.

Chapter six considers a combination of a lower AMC of 0.25% and a lower contribution charge of 5% of total contributions (i.e. employer and employee contributions plus Government tax relief). The contribution charge is assumed to stop when contributions stop but the AMC is paid until retirement.

Chapter seven evaluates each of the charging structures against the five criteria that the Government suggested.


To download the report, please click here.

To download the executive summary, please click here.

An additional document which accompanies the main report provides analysis of the sensitivity of the modelling to the assumptions made. To download this report, please click here. 

For information on the Briefing Note, please click here.

For information on the press release, please click here.

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