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Consultancy charging review: DWP charge caps could hit legacy trail

Steve Webb 480 LibDems DWP

The Government is considering capping charges for automatic enrolment pension schemes in a move which could force advisers to renegotiate previous trail commission terms with providers.

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 and threatening to ban the charging method.

Policymakers are understood to be weighing up whether an absolute cap on charges for qualifying auto-enrolment schemes should be introduced to ensure savers receive value for money pensions.

A Government source says: “We do not have retrospective powers but we can cap charges in qualifying schemes. If we were to implement a cap, any scheme which had a charge which exceeded that cap would become non-qualifying from when the law came in.

“The employer has a duty of continuity of scheme membership of a qualifying scheme, so that scheme would need to be changed or the individual would need to be enrolled into a scheme that was qualifying. So it is not retrospective as such but it could have a retrospective impact.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “For as long as you have legacy schemes with commission charges hard-wired into them, you have a potential flaw at the heart of auto-enrolment, so you can see why a charge cap would be attractive to the DWP.

“I do not think Steve Webb is particularly worried about intermediaries who are going to have their contracts rewritten by life companies.

“His belief is that, particularly for small schemes, there should not be an intermediary involved for auto-enrolment.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. So if Tom is right it’s the small schemes that will suffer – the very firms that currently do not have large HR of finance departments to deal with this.

    Perhaps small business owners should all enrol for a PMI exam in Pensions Auto-Enrolment.

    No doubt the cap will manage not to apply to the 2% contribution charge being levied on NEST members for an indeterminate – but no doubt long time.


  2. Of course, no intermediaries for smaller businesses. Thats a great idea!

    The companies who struggle the most, who have the fewest resources, and need the most help……………. let not help them!!

    I love the way that they are talking about a cap on consultancy charges. Something else that we will have no choice over. I seem to remember when NEST was first introduced as NPSS and there were going to be maximum charges of 0.35% per annum. That soon changed when the Govt all of a sudden began to understand that it wasnt possible.

  3. NEST – like every other government led pension initiative is doomed to failure. Yes, the employer is being forced to make a contribution but employees still have to accept the fact that their eventual pension will depend upon the economic growth of economies like ours which are in terminal decline, annuity rates which are likely never to recover and a benefit system which penalises those that save and rewards the feckless and lazy. So, even with an employer’s contribution, many employees will choose not to join. With arrogant (but ignorant) ministers who pontificate on acceptable charges for those giving advice whilst defrauding tax-payers on their own expense accounts, the future looks bleak. As an adviser I’m happy to stay well clear !

  4. I know that ministers and the FSA are keen for IFAs to advise employers and employees on NEST, but the implications for advisers when a complaint arises from either an employer or employee, would allow ministers and the FSA to abdicate responsibility for any complaint on to the head of the IFA. The scheme is not a product which appears to be regulated under current advice structures, so if in doubt about whether you should give advice on this potentially complaint producing scheme, DON’T!

  5. I`m just sitting here trying to remember the last time I read anything from the Government/FSA that combined common sense with workability? The disproportionate number of legally trained people working as MPs leads me to assume that we are being led to a very inauspicious and litigious end. Memo to self in the event of re-incarnation….Next time go into the law.

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