'Let down' advisers warn charging chaos will hit auto-enrolment
Thomsons Online Benefits chief executive Michael Whitfield has attacked the Government’s decision to launch an 11th hour review of consultancy charging and warned an automatic enrolment ban would force corporate advisers to adopt two-tier charging structures.
Last week, pensions minister Steve Webb (pictured) wrote to Association of British Insurers director general Otto Thoreson requesting evidence on the charging method and warning it could be banned for auto-enrolment.
Whitfield says: “I am livid the pensions minister has made this intervention with weeks to go until the RDR deadline.
“We have our plan in place and the majority of our clients will pay fees but it is an absolute disgrace that the industry has been let down by the FSA and the Government at this stage.
“The Government’s auto-enrolment TV campaign is not enough and will not foster member engagement. Member engagement has to be month in, month out and carried out by the employer or their adviser.
“Without relentless education, employees will expect their employer to provide for their retirement and the bottom line is that will not be the case.”
Whitfield says if the Government bans consultancy charging for auto-enrolment, corporate advisers could move to a two-tier charging model.
He says: “We can agree a consultancy charge with a client on 1 January but we have to include a caveat which says if the Government decides this is not allowed they will have to pay a fee.
“I have clients who want to do a consultancy charge next year. If the Government does introduce a ban for auto-enrolment schemes and a client wants to pay a consultancy charge, we would allow this up until their staging date.
“Once they hit that date, we would move to an advice fee per person model.”
Richard Jacobs Pension and Trustee Services managing director Richard Jacobs says: “We have agreed several contracts on a consultancy charging basis already which we will need to revisit.
“We have also spent a lot of time and money organising seminars and putting marketing material together for small employers ahead of their auto-enrolment staging date.
“But these people will not pay a fee, so if the Government say we cannt do consultancy charging then we will have to walk away. If small employers cannot access advice then auto-enrolment will fail.”
Consultancy charging: How we got to where we are
- June 2009: FSA consultation paper highlights the need to create a separate charging regime for group business under the RDR. At the time this was referred to as “arranger-charging”. Regulator highlighted the need for rules to fit in with the Government’s auto-enrolment plans.
- December 2009: A further FSA consultation paper develops the idea of consultancy charging, highlighting the need for charges to be spread fairly across members. Paper also confirms the HMRC would regard “reasonable” consultancy charges as “scheme administration member payments” and not as an unauthorised payment attracting a tax charge.
- March 2011: FSA publishes its final rules for consultancy charging. A working group published good practice guide to consultancy charging including the fact charges should be clear, fair and reasonable.
- March 2012: FSA RDR policy statement included information about how providers should facilitate consultancy charging in corporate pensions.
- June 2012: FSA newsletter highlights that a consultancy charge should not take contribution levels below the auto-enrolment minimum. Also reminded firms they “must have regard to the best interests of both the employer and their employees when setting their charges.”
- November 2012: Pensions minister Steve Webb writes to the ABI to announce plans of an “urgent review” into consultancy charging which could lead to it being banned for auto-enrolment.