View more on these topics

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


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.

This follows an Office of Fair Trading investigation into the pensions market, 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.”


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. This is the first showing of how some advisers will be treated for those who sold AMC based commission schemes – the provider can’t afford to lose out due to shareholder pressure, the client can’t be seen to lose out due to regulator pressure so there’s only one area left – advisers. You were all warned. And when AMDs are banned so no cross subsidy for commission, let’s see if the providers maintain the commission terms then too. If the IFA remuneration is squeezed so they can’t be paid from the plans for their time and withdraw, maybe those providers who have a direct offering will step in to offer the service instead of us. Makes one wonder if it was all a big plan for it to happen that way.

  2. Mark Coughlin 14th May 2013 at 9:53 am

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

    I think that the IFA community has genuine concerns that at the moment regulatory charges, particularly where Government is involved, can be too high.

    Unfortunately I think the regulator’s charges will only ever increase, shame we can’t have a cap on them.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm