The Government has moved to ban consultancy charging for automatic enrolment, raising fears that companies will shun advice due to the costs involved.
Consultancy charging was devised by the FSA to allow advisers to take a fee from employees’ pension pots for advice given to the employer.
In November, the Government launched an “urgent review” of the charging method due to concerns about the impact advice fees would have on workers’ pension pots.
In a written ministerial statement published last week, pensions minister Steve Webb sets out plans to ban consultancy charging in all auto-enrolment pension schemes.
Webb says: “It is vital that the pension savings of individuals who are automatically enrolled are protected. Following a thorough review, I have concluded that the consultancy charging mechanism is not appropriate in schemes used to comply with the employer duties under the Pensions Act 2008.”
The DWP says the consultancy charging ban will not be retrospective and applies to any scheme written from 10 May.
A DWP spokeswoman says: “The regulations that bring the ban into effect will define the starting point.
“However, given the intention to ban announced today and the constructive engagement we have had from the pensions industry over the past months, we would not expect providers to initiate new sales of business including consultancy charges from this point.”
The Association of British Insurers warns the decision could leave an auto-enrolment advice void.
ABI director of life, savings and protection Stephen Gay says: “It is vital that savers have confidence that the pension savings system can be relied on and charges are an important part of that.
“However, the Government’s decision to ban consultancy charging in automatic enrolment schemes creates a different risk to the success of pension reform in that it will reduce the availability to employers of advice and support to ensure they make the right pensions decision for their employees.”
Affluent Financial Planning managing director Carl Melvin says: “I am hugely concerned that small firms in particular will not get advice as a result of this.
“The Government needs the adviser community to engage with employers because if they are not interested then their staff certainly won’t be.
“If the Government keeps making it difficult then advisers will walk away and auto-enrolment will fail miserably.”