UK - None of the charging structures proposed by the Personal Accounts Delivery Authority (PADA) in its recent consultation will meet all of the evaluation criteria, the Pension Policy Institute (PPI) has revealed.

In its latest briefing note "Choosing a charging structure for personal accounts", the PPI highlights the types of charges being considered for the new system of personal accounts and the criteria used to evaluate them, but warned "trade-offs will have to be made".

PADA issued a consultation in January to seek feedback on how the charging structure - but not the level of charges - should be developed )See earlier story: PADA rejects flat fee for personal accounts) which included four possible options:

an annual management charge (AMC); a contribution charge, as a percentage of each contribution; a joining fee which could be a proportion of contributions or in conjunction with an AMC, or a structure that combines at least two of the different elements. However, in its research the PPI showed the three criteria for evaluating the charging structures - perception, sustainability and retirement outcomes - led to the proposed structures performing better in some areas than others, but with no overall winner.

On the issue of participation, the PPI highlighted the key considerations are members' perceptions of simplicity and transparency, with contribution charges and AMCs performing well.

This was supported by recent research from PADA suggesting although members do not think the charging structure would impact their decision to opt-in or out of the scheme, the majority preferred a single rather than combined charge for simplicity and transparency, with the joining charge receiving the most negative response.

In addition, the briefing note recognised "fairness of retirement incomes" is also a complex area to evaluate, as the criteria applies across different groups of people and between different generations.

The PPI also said there are different definitions of 'fairness' as one is everybody pays the cost of running their fund with no cross-subsidy, while another is everyone loses the same proportion of the fund value to charges, however no proposed structure meets the first definition, and only a pure contribution test would meet the second.

Finally on the issue of sustainability - which are focused on the quick repayment of borrowing to allow charge levels to drop - the PPI suggested the fairest structure would be a joining fee - which was rejected by members - while an AMC could be seen to take too long to repay.

However, because the different types of structure require different amounts of borrowing - ranging from £100m for a contribution charge and £11.8bn for an AMC - the PPI warned "it may not be possible to separate the decision taken on the charging structure completely from the resulting charging level".

As a result the PPI concluded "there is no single charging structure that performs well against all the criteria", but it claimed the proposed criteria are "interdependent and hard to rank", and warned in determining which structure to go for "trade-offs will have to be made" by PADA.

The consultation on the charging structure closes to responses on April 22 2008, with further consultations on scheme rules, and fund structures and investment choice to be released later in the year.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email