UK - Cost is not a key-factor in the choice between the delivery options for the government's planned Personal Accounts scheme, as the proposed centralised model will only provided limited economies of scale, according to a report from the UK's insurance industry.

The Association of British Insurers (ABI), which commissioned an economic analysis conducted by consulting firm Oxera, said that "cost alone cannot be the decisive factor" in choosing between a single National Pensions Saving Scheme (NPSS) or the industry's preferred model based on competing financial services companies.

The research suggests that there are potentially "greater benefits to consumers from comtinuous competition between providers rather than a one-off tender exercise," which will provide more powerful incentives to reduce costs and improve levels of service, the association said.

"It is therefore important now to consider the advantages of competition between providers, together with choice for those who want it," said Stephen Haddrill, the ABI's director general.

Significantly, the report showed that the likely level of marketing expenditure, which has been previously estimated to become excessive in the industry model, would be roughly equivalent to the bidding for the main tender in a centralised system.

The research tested in particular whether there are potential economies of scale in administration and/or fund management, and whether the absence of brand marketing costs would advantage a centralised scheme.

The report found that economies of scale in pension administration were limited beyond 500.000 accounts, while economies of scale in fund management were only significant for fund sizes up to between £500m and £1bn.

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