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Advisers attack consultancy charging ‘shambles’ 5 weeks before RDR

Steve Webb 480 NAPF 2012

Advisers have attacked the Government and the FSA’s “shambolic” handling of consultancy charging after pensions minister Steve Webb paved the way for an “urgent review” of automatic enrolment advice fees.

Under RDR rules, advisers who advise employers will be able to levy a consultancy charge for the work they carry out. This will be deducted from the pension pots of employees who join the company pension scheme.

Pensions minister Steve Webb (pictured) has written to Association of British Insurers director general Otto Thoreson requesting evidence about the way business involving consultancy charges is being structured for group personal pensions.

The FSA has already said it will not allow a consultancy charge to reduce the value of a member’s pension contribution below the auto-enrolment minimum of 8 per cent.

Syndaxi Chartered Financial Planners managing director Robert Reid says: “You could see this coming from a mile away, it is absolutely shambolic.

“We have DWP saying you cannot erode contributions through consultancy charging, the FSA saying it has to be a better deal than the auto-enrolment minimum and a bunch of SMEs who won’t pay an upfront fee.

“It beggars belief that we are five weeks away from the RDR and advisers still have no idea whether they can levy a consultancy charge for setting up a group scheme.”

Master Adviser senior partner Roy McLoughlin says: “It is absolutely ridiculous that the DWP has made this intervention at the 11th hour.

“Businesses are asking questions about auto-enrolment and for there to be so much confusion about a crucial area is not good news.

“Employers need clarity about how they can pay for advice as a matter of urgency.”

Aegon head of regulatory strategy Steven Cameron says policymakers should distinguish between employers paying the auto-enrolment minimum and those voluntarily paying above the minimum.

He says: “We need to be very careful that we differentiate between situations where a consultancy charge reduces contributions below the statutory minimum and other situations where an employer might be paying far more in and wants to cover the cost of their advice out of part of that excess.

“That is an important distinction we need to draw because these two situations are very different. It would be bizarre if DWP, FSA or anyone else say to an employer who has voluntarily agreed to pay above the auto-enrolment minimum that they were not allowed to agree with an adviser to take payment out of those excess contributions to cover the cost of advice to the employer.

“I am very concerned that the phrase ‘auto-enrolment scheme’ is being misused because not everyone will be paying the minimum.”


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. It’s ok for the Government to charge employers and employees a 1.8% regular premium fee and a 0.30% fund manager’s fee to enrole in a NEST but IFA’s have to work for FREE 0%!!!!

  2. *smacks head*

  3. It does beggar belief that NEST can levy charges that will in many cases be in excess of a consultancy charge, yet be beyond the scope of this 11th hour change.

    TPR would like advisers to help SMEs, FSA would like SMEs to help themselves, Webb would like the ABI to help him out of the hole he has dug and DWP would like everyone to look the other way as they award themselves bonuses next year for yet more excellent work.

    You couldn’t make this mess up if you tried.

  4. Sadly, this would seem to be evidence that advice about pensions is not valued. The good intentions to increase pension saving has not been well thought through in terms of delivery.

    There has been awful lot of prescription from Government/s on this issue which does not encourage personal responsibility.

  5. Does this mean that employers who select NEST will have to increase their contributions by 1.8% until this charge drops from the NEST contract…assuming that employers selecting this low cost low tech pension scheme are the type of employers who only want to operate at the minimum levels?

  6. Does Steve Cameron, or anyone else for that matter, truly believe employers will pay above the minimum? Most small employers cannot even afford and do not wish to afford to pay the minimum let alone pay over it.

  7. Meanwhile our pensions minister is devising scheme shapes which hybrid DB and DC: we will need to wait until he realises that he isn’t really any good at it before he sets his mind to deal with the reality of the market as it presently works.

  8. This is what happens when people with a total lack of entrepreneurial experience are asked to regulate what has always been a sales orientated industry. The end is nigh!

  9. The minimim contributions of 8% are based on qualifying earnings between set amounts; £5,500 to 42k (not exact but you get the idea). Most schemes pay contributions on a percentage of basic salary or overall earnings i.e. they don;t start contributions on the excess over £5500.

    Even for work with EEE’s who dont’ earn above the higher end of the qualifying earnings band you could take £440 (5500 x 8%) per year from the contribution and the minimum qualifying premium would still be being paid

    Also employers worth dealing with won’t be starting contributions at 1 plus 1 (the minimum when they reach their phasing date) so if they start on 3 plus 3 you could take 66% of the contribution and STILL be meeting the minimum premium criteria

    Failing that take a fee as an OAC – after the premium paid and therefore invested. The minimum premium has been paid and you can take whatever you want.

    AC, CC and OAC give far more opportunity to earn money for work done than commisision ever did and the high earners won’t be paying for the shop floors’ advice!

  10. Anonymous | 27 Nov 2012 3:20 pm
    Now that is a very useful point.

  11. Anonymous: “Also employers worth dealing with won’t be starting contributions at 1 plus 1 (the minimum when they reach their phasing date) so if they start on 3 plus 3 you could take 66% of the contribution and STILL be meeting the minimum premium criteria”

    750,000 employers currently provide NO pension at all for their employees assuming they have made that choice for a reason…budget/economy/business sector then why do they not deserve access to advice? I thought that AE was aimed at exactly these employers/ees and not just those employers who already provide pensions for their employees. This leaves 550,000 who already have a pension of some kind and in theory aleady have advice or some idea as to what they need to pay. Does that mean advisers will turn their noses up at these other employers/ees and redirect them to MAS/FSA/TPR and suggest they get their advice there?
    These employers ARE worth dealing with but need to be engaged in such a way that they can afford to pay for advice…a 3% increase in the payroll of a small business could be the difference between profit and loss at the moment so who will be rushing to pay more than they need to…. before they need to?

  12. Hello Playmates!

    !sreknaw fo hcnub a tahW


    Larry xxx

  13. Steve
    Appreciate your comments but if the employer is paying the minimum, we can’t deduct CC that takes the premium below the minimum and isn’t prepared to pay a fee as this will take them into a loss making position – how do you propose ‘we engage in such a way they can afford to pay for advice’?

    Anonymous | 27 Nov 2012 3:20 pm

  14. I was chatting to someone in an HR department for a reasonably large company and the subject of NEST came up. This company currently run a GPP scheme with a 5% matched contribution from employee and employer. They will be switching this to NEST at a 1% + 1% contribution.

    I wonder how many other employer will be downgrading their GPP’s to NEST?

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