View more on these topics

Aviva: Pension charge cap could force providers to rethink commission deals

Aviva-building-logo-2013-700x450.jpg

Aviva warns providers could revisit commission terms agreed with advisers prior to the RDR if the Government introduces a cap on pension charges.

Last week, pensions minister Steve Webb published a written ministerial statement setting out plans to consult on capping pension charges later this year.

In January, the Office of Fair Trading launched an investigation into pensions, including the amount providers charge scheme members.

Webb says: “The OFT is investigating the whole workplace pensions market and we will act promptly and vigorously later this year in the light of their findings.

“In light of the forthcoming OFT report, the Government plans to publish a consultation this autumn. This will set out proposals including for introducing a charge cap.”

However, it remains unclear when such a cap would be introduced or at what level it would be set.

Aviva corporate benefits head of policy John Lawson says if policymakers cap charges below 1 per cent then providers would be forced to strip out pension scheme costs.

He says: “There will be problems if the Government set the cap significantly below 1 per cent.

“There are quite a lot of schemes charging between 0.8 per cent and 1 per cent that were written on a commission basis between three and five years ago.

“If the cap is squeezed too far then providers will be pushed into making some very difficult choices.

“If the cap was set very low then providers would need to cut costs somehow because you cannot operate at a loss. That would put pressure on things like ongoing commission payments.”

Although the Government has yet to confirm how the cap would be applied, Hargreaves Lansdown head of pensions research Tom McPhail says it would be “impossible” for the Government to cap charges across the market.

He says: “I think it would be impossible to apply a blanket charges cap because that would massively eliminate consumer choice.

“I am fairly confident any charge cap will be limited to default funds. It is not clear yet where they will pitch the level of the cap but once you get below 1 per cent – and most auto-enrolment schemes are already below 1 per cent – the difference you are making to an investor’s returns diminishes quite rapidly.”

According to the Association of British Insurers, the average charge for newly established auto-enrolment schemes is 0.52 per cent.

Keyte Ltd director Robin Keyte says: “I completely understand why the Government wants to cap charges and I think it is the right thing to do.

“I think the Government has genuine concerns that at the moment scheme charges, particularly where an adviser is involved, can be too high.

“I would expect any cap to be somewhere around the 1 per cent mark.”

Recommended

Business-People-Portfolio-Hire-Appointment-700x450.jpg

Scot Wids hires L&G RDR director to lead intermediary protection offering

Scottish Widows has hired Legal & General RDR business implementation director Esther Dijsktra to spearhead its return to the intermediary protection sector. Dijsktra has been appointed head of intermediary protections propositions and will prepare the lender for its re-entry into the sector, which will be towards the end of 2014. She will be supported by former Aegon […]

1

CBI: UK economy ‘moving from flat to growth’

The Confederation of British Industry is expecting the UK economy to continue to grow this year and expand by 2 per cent in 2014, according to its latest economic forecast. GDP growth is expected to be 1 per cent in 2013, with a gradual increase at a quarterly rate – climbing from 0.3 per cent […]

PIMS: HMRC U-turned over rebate tax decision

Standard Life says HM Revenue & Customs changed its mind about whether to tax platform rebates only six months after indicating it did not see them as taxable. Speaking at PIMS onboard the Aurora today, Standard Life head of platform propositions David Tiller said six months before deciding rebates were taxable, HMRC said they were not. […]

Guide

Guide: day-to-day tasks ​— can your system manage?

This guide from Johnson Fleming will take you through the required communication and also give ideas for additional actions that will ensure your auto-enrolment project is a success. As well as highlighting what is required from a system to ensure it is up to the tasks, an overview of the following is also provided: data validation; data categorisation; employee communication; opt-in process; opt-out process; produce contribution schedule; contribution reconciliation process; upload of member data to pension provider; upload contribution to pension provider; manage salary sacrifice process; enrolment process; re-enrolment process; and management of increased employee queries.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Where would that leave Nest? Their charges for a 60 year old are 1.2%pa (source: Nest website)

Leave a comment