Furore at pension commission split
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Hargreaves Lansdown has slammed rival corporate advisers for providing rebates to employers at the expense of pension scheme members in a bid to win business.
The company claims that a number of corporate IFAs have been recommending employers to transfer pension funds into new schemes earning the maximum commission of 30-35 per cent of the annual premium.
The adviser then splits the commission they receive from the provider with the employer. Some cases are believed to have involved more than £500,000 being rebated to employers.
Aviva, Aegon and Scottish Widows are the only providers still paying commission on group pensions.
Hargreaves Lansdown head of pensions research Tom McPhail says: “I am struggling to work out how this is not theft. Employers, their advisers and the product providers are between them colluding to deliberately overcharge scheme members in order to recycle employer contributions back into the company.
“The provider gets the pension scheme with its inflated charges, the IFA gets a slice of commission and the employer gets their money back. The only people who are losing out here are the employees for whom the scheme was established in the first place.”
Standard Life head of pensions policy John Lawson says: “This sort of practice is rife at the moment. The employer is effectively using employees’ pension funds to subsidise their business.
“Employees are paying higher pension charges than they otherwise would if this commission was not taken. Charging employees more for their pension to bankroll their cash-strapped employers is morally wrong.”
Aviva says it is unaware of commission being rebated to employers.
A Scottish Widows spokesman says: “We are not aware of this practice being widespread. We have seen an instance of this where the rebated commission was used to provide other employee benefits in the workplace.
“Any commercial transaction between the adviser and the company sponsoring the pension scheme will be subject to agreement between those parties and we do not see it as our role to be involved in that debate.
“We price corporate pensions business on a case by case basis. We believe in a sustainable approach to terms and pricing for quality company pensions.”
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Readers' comments (6)
Anonymous | 8 Apr 2010 5:05 pm
This comment is 'rich' from Standard Life. If we (the adviser) take reduced commission (to cover our fee agreed with the client) on an external transfer into Standard Life monocharged plan, they rebate the unpaid commission for the benefit of the member by crediting additional units. However, they refuse to pay commission on internal transfers and do not rebate the unpaid commission into the member's plan as they would do on an external transfer in. In these circumstances, the only benefit is to Standard Life!
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Oh boy!! | 8 Apr 2010 5:07 pm
First of all, how is an employer involved?? If it's an OPS then there are Trustees (who have a statutory duty to act in member's best interests) - if it's a GPP then the policy is the member/employee's ... surely!?!
Or if a GPP is effected on a 'direct offer' basis, how can you possibly take max commission, if you're basically doing b*gger all for the money?? (wonder if they're also getting trail for 'managing' the underlying investments ... mmm ... maybe not, methinks)
Ok, Tom ... have the guts to name and shame them ... if you have the 'evidence' then we/the FSA need to know who they are ...
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Chris Neil | 9 Apr 2010 10:41 am
Aviva, Aegon and Scottish Widows are the only providers still paying commission on group pensions??????
HO HUM!!!
So when Scottish life pay an IFA out of the contributions the employee/employer makes, (which increases the charges to the member) and call it a financial adviser fee can anyone tell me why this is not commission?
As far as I am concerned if payment to the adviser is out of contributions through plan charges it is commission.
And by the way there is nothing wrong with commission it is just that companies like Scottish Life try to market it as a fee.
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Anonymous | 9 Apr 2010 2:19 pm
I am surprised that anyone after reading this document from the FSA http://www.fsa.gov.uk/pubs/other/guide4employers.pdf would be either encouraging employers to receive rebates of commission from advisers or accusing others in the market from doing so without some hard evidence. If they had hard evidence one wonders why they didn't contact the FSA directly rather than the press. OK you might be able to find some apparently legal way of doing so without breaching the FSA's rules if you claim that the employer wasn't promoting the scheme, but surely you would be on very thin ice if you did and a central interpretation of the FSA's document is that employers shouldn't obtain commercial advantage from the sale or promotion of their scheme. The end of page 2 makes that pretty clear to me. Even if you can get around the FSA's rules you have to ask whether the employer is operating outside the normal course of their business by accepting a kickback of commission and what the consequences of this could be?
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Anonymous | 12 Apr 2010 6:41 pm
Interesting point from Chris Neil about "what is commission?" But Canary Wharf sees it rather differently. They're going to "ban commission" but allow adviser charging, which takes the payment to the adviser from the plan.
The real difference is that with commission it's the provider that's in control of how muuch the adviser is paid; with adviser charging it's the adviser and their client whio are in control.
I can't see much wrong with that!
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David Batts | 14 Apr 2010 2:39 pm
Comments by the likes of Tom McPhail and Standard Life's John Lawson tend to be calculated to suit their own business model rather than any notion of morality.
Standard Life no longer opperate a commision bearing contracts, so of course these can not be a good thing (notwithstanding that they happily offer them for years).
Standard Life are also losing swathes of established schemes because their annual managment charges are too expensive. If on review of a Standard Life scheme, a lower amc can be achieved and the insurer is happy to pay a level of commission that provides the advisor/employer with the opportunity to provide the employee with additional benefits then i should think that was a good thing and it would be 'morally wrong' not to support it whole heartedly.
I doubt Lawson's statement that “This sort of practice is rife at the moment" for obvious reasons and tend towards Scottish Widows' comment that they are aware of a few instances.
Regards
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