A few weeks ago, I raised the point about the rules issued by HM Revenue & Customs on adviser-charging. While we were checking these rules, we asked several pointed questions about group personal pensions and employer-sponsored defined-contribution plans in respect of consultancy- charging. At this point, we still await a reply but let me fill you in nonetheless.
In HMRC’s rules for adviser-charging, it stated that you cannot take the advice costs for an Isa out of your pension and at the same time it also confirmed that the terms for adviser- charging were to be read across to consultancy- charging. Now this puzzled me as under adviser-charging, I cannot debit Isa advice for the planholder from a personal pension, yet, under consultancy-charging, I can debit advice to others, for example, those who did not join the GPP and advice to their employer. In the latter case, I could possibly understand that if it related just to the members’ own contributions but no, it evidently applies to all contributions.
Now all that may have confused the issue, so to ensure my point is appreciated, let’s look at a case study. In a scheme with 100 members and a joining rate of 50 per cent, the 50 who join will suffer consultancy- charging at a level that covers advice or at a minimum presentations/communications to the 50 who did not join and the costs of the advice delivered to the employer.
Going back to the Society of Pension Consultants’ guidelines, this fails its fairness test and would also give some issues under treating customers fairly would it not?
For me, consultancy- charging was never going to work, it is a corporate solution for individual products after all a GPP is just that, a group of personal pension plans.
Why all this was left until now mystifies me, as does the approach to negotiations between the ABI and HMRC over investment bonds and adviser-charging, where the 5 per cent allowance is depleted. I mean giving in again due to no one in the negotiating team and those agreeing to new rules ever having given advice. But then that is the Association of British Insurers, whose RDR committee agreed HMRC’s changes.
A trade body only slightly less dysfunctional than the Investment Management Association, a trade body where the committees are still dominated by the dinosaurs. Just what will happen when the RDR arrives is clear for all but them to see.
The newer and more progressive firms need to get together with the investment houses that recognise margins are reducing, admittedly this will be a small group but we need to start somewhere.
Extending reliefs or tying reliefs to workplace financial education would enable much of this rule-making to be avoided through encouraging employers to pay directly and avoid this whole debacle.