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DWP report scrutinises auto-enrol commission charges

Savers in pension schemes set up on a commission basis pre-RDR are on average charged an extra 0.2 per cent a year, DWP research reveals.

An independent study of defined contribution pension charges commissioned by the DWP shows that, on average, members of schemes with in-built commission pay an additional 0.2 per cent in annual management charges compared to members in schemes without commission.

The DWP is currently considering the impact a ban on in-built adviser commissions would have on auto-enrolment.

Scheme size was also found to be an important factor affecting the average AMC paid by members. Across both trust and contract-based schemes charges tend to be lower in large schemes when compared with smaller schemes.

The level of contributions, which providers use to help determine the amount they charge, and the age of the scheme are also cited as key determinants of the AMC.

Overall, the average charge in all contract-based schemes was 0.84 per cent, compared with 0.75 per cent in trust-based schemes.

According to the report, providers argued that higher charges gave them freedom to offer a better service to customers.

It says: “Providers felt that higher charges sometimes allowed them to offer a range of higher quality services, which could help drive member engagement.

“A few providers described anecdotally how charging a bit more allowed them to devote more resources to nurturing employer
and member relationships, for example, by spending more money on producing high-quality communications.”

Advisers also suggested choosing a pension scheme was about more than just price.

The report says: “Some advisers shared providers’ views that there was more to picking an appropriate scheme than simply identifying the one with the lowest charges.

“While they always took charges into consideration when researching the market, they looked primarily at how different charges would deliver value for money.

“Advisers did not agree on a specific list of services for which it was worth paying more, but explained in broad terms that they would recommend a higher-priced scheme if they felt that it was better suited to the employer’s and members’ individual objectives.”



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

  1. An extra 0.2% AMC funds commission and employers then pay smaller/ zero fees. The firm stays in business and receives IFA support. Members pension pots may be slightly bigger at the other end, but the firm is still in business and still employs all staff. Alternatively smaller firms can pay a fee of what £1500 or more. Then auto enrolment advice becomes just another tax – like the contributions – and from a party theoretically supportive of smaller business and committed to lower tax this would be rank hypocrisy…

  2. On a day when the Prime Minister is trying to get insurers to dance to his music regarding floods, the DWP are still throwing stones. Anyone would think that the DWP have been politicised and are sore that Cameron has called a halt to the price cap

  3. @Simon – exactamundo

  4. Why not ban commission on all schemes it makes totally transparent. Who would be against that? Advisers and I am one need to realise that they should only be paid for agreed services, not be paid for services the client doesn’t want or want to pay for. We are in a new world which is the right world for all. I think Steve Webb is on the money so far and seems to get it.

  5. looking for a little info? like your setup and how your to the point starting my site up check it out and get back to me! I’m always looking for new ideia and friends to collaborate with for better results!!

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