The Government plans to ban consultancy charging for automatic enrolment and is considering introducing a cap on pension charges.
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 this morning, pensions minister Steve Webb sets out plans to ban consultancy charging in all auto-enrolment pension schemes.
The DWP also plans to consult on capping pension charges in the autumn.
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.
“I am therefore also announcing the Government’s intention to ban consultancy charges in automatic enrolment schemes. This will apply to both occupational and personal pension schemes and I intend to lay regulations before Parliament as soon as possible.
“Furthermore, in light of the forthcoming Office of Fair Trading report, the Government plans to publish a consultation this autumn. This will set out proposals including for introducing a charge cap.”
The DWP says the consultancy charging ban will not be retrospective and will apply to any scheme written from today.
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 Government has not yet confirmed when a pension charge cap would be introduced or at what level the cap would be set.
The work and pensions select committee recommended a total ban on consultancy charging in its pre-legislative scrutiny report into the state pension reform bill.
WPSC chair Anne Begg says: “We were absolutely clear that consultancy charging should be banned so I’m very pleased. We also want Nest restrictions lifted, which will have to be done to introduce pot follows member.
“If you take it all together then it gives auto-enrolment a fairer chance of being successful. At all times we should be looking to maximise the return of pension income for the employees.”
Shadow pensions minister Gregg McClymont says: “The Government is finally responding to Labour’s policy agenda for workplace pensions. Movement on consultancy fees and consultation on a charge cap is a step forward, and we will examine the details of the proposals closely when the Government publishes them.
“The Government, nonetheless, needs to go a lot further to ensure value-for-money. It needs to ensure the savers’ interests are delivered by independent trustees, it needs to ensure that pension schemes operate at scale, it needs to ensure clear and simple transparency of all costs, and, it needs to lift the restrictions on Nest.”