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Does DWP have evidence of a pre-RDR pension commission spike?

A Government-ordered report has provided some evidence of a pre-RDR spike in commission-related group pension business as policymakers consider whether schemes with built-in commission should be banned.

But advisers suggest the increase can be explained by the fact more employers were looking to take advantage of pre-RDR commission deals that were in the interests of their employees, rather than being caused by advisers rushing to take advantage of a commission “closing down sale”.

In October, the Department for Work and Pensions published a consultation on capping charges for automatic enrolment pension schemes.

The DWP also cited built-in adviser commission as a potential cause for concern and asked for evidence of an increase in sales of defined contribution schemes with commission in the run-up to the RDR.

The consultation said: “There is some anecdotal evidence that there was a spike in sales of group personal pensions in the months leading up to the introduction of the RDR.

“If this spike in sales was a rush to set up schemes with commissions to be used for auto-enrolment, this would be a cause for concern.”

An independent report commissioned by the DWP, published last week, reveals the use of commission-based advisers for contract-based DC schemes increased from 28 per cent of schemes in 2011 to 41 per cent by 2013.

The use of commission-based advisers also rose in trust-based schemes, from 20 per cent in 2011 to 25 per cent by 2013.

The findings are based on a survey of 593 trust-based schemes and 717 contract-based schemes.

The report says: “The fact that commission was banned for new schemes sold from 2013 under the RDR may be one of the reasons why this study shows an increase in commission-based advice in the run-up to the ban.”

The findings follow Money Marketing’s report last week that the Government is considering a three-year “sunset clause” as part of proposals to ban pre-RDR commission linked to auto-enrolment schemes.

Thomsons Online Benefits chief executive Michael Whitfield says: “We actually set up more new GPPs in 2011 than 2012.

It is likely that more employers simply became aware of the impending commission ban during 2012 because, as you would expect, advisers told them.

“I think the DWP is grasping at straws in order to impose its will on the adviser community. There may have been some abuse at the lower end but there was no ‘buy now while stocks last’ scenario whatsoever. It is just fiction.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “The regulator’s inability to get a clear consultancy charging regime in place led many firms to set up a scheme framework pre-RDR so they could continue to benefit from commission post-RDR. The DWP should have sorted this out already but, if a pre-RDR commission spike was the main concern, a ban now looks inevitable.”

DWP charges graph

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