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DWP to ban consultancy charging, considers pension charge cap

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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.

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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.”

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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.”

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Comments

There are 26 comments at the moment, we would love to hear your opinion too.

  1. Great news….

    …maybe they will ban the NEST up front charge too?

  2. Once again ‘clueless’ Steve Webb makes it up as he goes along. I think the E&Y figures released earlier this month will need to be revised upwards now. How long before they ban Adviser Charging as well?

  3. John the Corporate Adviser 10th May 2013 at 10:23 am

    Once again, the government make it more and more difficult for Advisers to involve themselves in advising on pensions for the masses. Steve Webb clearly has no idea that Corporate Advisers need either CC or commission to afford advice to the members of occupational or group pension schemes.

    is this all a big ploy to force more companies to use NEST? I am beginning to think so. They have spent so much developing it and are so scared of the competition who can provide a more thorough service that they have to change the advice landscape to make it a success for themselves. Personally I think this is not the right route and may have to think twice about whether I can run a profitable business in this climate now.

  4. Of course its a ploy to force employers to use NEST.

    With its upfront consultancy charges!

    Are they going to introduce a charges cap on gas, electricity and petrol?

    Once again politicians using pensions for scoring brownie points with the public.

    I hope the OFT investigates the state funding of NEST whilst its at it and deems it to be illegal.

  5. I posted a similar thread a few months ago when it was suggested that we work for free to promote NEST. It is clear that there are superior options in the marketplace, therefore the less adviser involvement, the less chance of employers finding out.

    Stakeholder failed, and NEST will go the same way. If they are looking at a charge cap, the initial charge on NEST is a good place to start The scheme administrators will soon find out they cannot run it profitably without significant market penetration, and even then it will be years before they break even.

  6. So not only has the RDR ensured that millions of individuals will not get access to advice on personal issues but now millions more employees will not receive advice about the work place pension scheme if the employer is not willing to pay fees to set up a far superior scheme. A real move forward in terms of progress for those in need of real advice around the single most important issue they are likely to face.

  7. open letter

    Dear Mr Webb

    The reasons for writing to you is that it has been reported in the press you are considering banning consultant charges and also capping fees on all occupational pension schemes. I work as an independent financial adviser and it is increasingly becoming difficult for advisers to make a profit in a highly regulated industry.

    So, instead of coming up with broad statements that you are going to ban consultancy charging maybe you’d like to come up with suggestions of how advisers are meant to charge for pension advice.

    After all we are businesses and have to make a profit!

    Are you really suggesting that all of the costs of setting up a occupational pension scheme for a small company should be borne solely by the employer through direct charges.

    If that is the case then please spell this out as I’m sure that the many small businesses in the UK will be extremely happy with you (not).

    After all this is a compulsory scheme that everybody is going to have to set up and make sure that there are employees comply with extremely complicated pension legislation and allowances.

    The fines for not complying with this legislation are scary for employers. E.g. £400 statutory notice and then depending on the number of staff you could receive a fine per day for not complying with the regulations.

    1-4 saff 50 per day
    5-49 500
    50-249 2,500
    250-499 5,000
    500 or more 10,000

    So businesses will not be able to stick their heads in the sand they will have to address this piece of work based legislation.

    This is all very well and fine but this is a considerable amount cost add onto a business particularly as start-ups will become liable for this scheme from 2016 even if you employ one member of staff.

    So instead of coming up with some grandiose statement of banning consultants charging maybe you’d like to come up with suggestions of how advisers can charge and make a profit. Surely you have a responsibility to make sure that businesses comply with the law and so will need to take advice or are you expecting to turn every small business owner into a pension expert.

    It seems that regulators like yourselves think that advisers should work for FREE, whilst paying high regulator fees to keep you are highly paid job!

    Regards
    Peter Herd

  8. sorry for the typos and spelling but you get my point

  9. This is unsurprising and, perhaps, understandable, however the frustration is that this is late in the day and advisory firms are looking to advise their clients in respect of AE obligations yet the goalposts are being moved.

    My opinion is that, in the future, AE is more an issue for payroll providers, accountants etc. etc. and IFAs will simply be used to advise members on member level issues, where this is required.

  10. “A DWP spokeswoman says the consultancy charging ban will not be retrospective and will apply to any scheme written from today.”

    “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.”

    As Steve hasn’t put the plans before Parliament & they are intentions not regulations yet how can the DWP state that the regulations are not retrospective and will only apply to any schemes written from today – that will be retrospective then when the regulations are to be passed in the future!

    As I said previously clueless.

  11. Auto-enrolment without commission or consultancy charging into a scheme that has a charge cap…….stakeholder? Sounds like we are going backwards in time not forwards!
    The auto-enrolment game kicked off last year Mr Webb – any chance you could tell us what the rules are?

  12. Webb, chinless public school twit.

    Am I wrong or did this government state it was going to help us small businesses ?

    They have not got a clue.

  13. The only thing they did wrong was realise the mistake too late in the day.

    Consultancy charging always was a terrible idea, and massively detrimental to members of the scheme. Most people would not see a benefit for having a charge taken from their contribution. Especially when, in some cases, advisers were looking to charge £500 per member for setting the scheme up plus £100 pa for servicing. What would the individual member have seen for that I wonder? Some generic literature from the provider and a strange man in a nice suit walking towards the directors board room once in a while I would think.

    I don’t think that AE is actually even a financial advice issue. It’s an accountancy/payroll issue and it is these people who should be taking the lead when helping employers. The financial advice part comes when the employer wants to know which pension provider is the most suitable for their needs, and whether they can reduce their exposure to cost by using Salary Sacrifice. How much do you really think that would cost? Your hourly rate times x number of hours. The main problem with this announcement is that most advisers now can’t see how they can make a huge profit out of someone elses burden.

    The days of massive windfalls when dealing with a GPP are dead and buried. If you are smart and realistic, you can still make a profit and get access to good population of individual clients.

  14. Do as you please Mr Webb but I am not working for free.
    It makes me laugh when people like Webb Milliband Which and FSA try & fool consumers into believing that an adviser pockets every penny of whatever charge is made, without any reference to the cost of regulation liability or government interference.
    That probably suits you as most employers will just enroll in nest without any advice as to whether there is something better out there.
    Is that you cunning plan?

  15. @Anonymous 1.30pm

    So there is no value to scheme members in Governance ? CC would have been broader than just Aut-enrolment costs.

  16. I completely agree that if we’re looking at charge caps, the first place to start is NEST’s 1.8% upfront charge. Does this signal Gov will change NEST’s charging structure? I hope so!

  17. Dathan Steele 11th May 2013 at 7:39 am

    Oh dear chaps. The old GPP gravy train has been derailed! What do you mean I can’t set up a scheme, drag out 50% of the first year’s employee contributions as commission, then after 4 years do it all again?

    I’m shocked. Shocked that FSA were actually going to allow this scam to continue.

    So, where to go. Errrr, charge the employer a fee for your time. They write you a cheque, like they would for accountancy or legal advice. A radical concept, agreed, but might also have the effect of the employer thinking of the adviser as a professional adviser rather than just some commission hunting salesman. Play it right and the directors might even want to engage you as an adviser, giving you a whole new high net worth client bank.

  18. Clueless the lot of them 11th May 2013 at 9:40 am

    So could somone explain to me what the difference is between a consultancy charge equal to 2% of each contribution (banned) and the NEST initial charge of 2% of each contribution, er NOT banned.
    IS there ANYONE in any position of authority in this country who has any competence or thread of intelligence???

  19. @ David. I don’t think you understand that when HMG says ‘we don’t expect…’ then no company worth their salt would even think of ignoring them. I know as a small product salesman you think you are on some sort of tefal coated pedestal, but come on, get real!

  20. So what now happens to those schemes that were set up on better than Nest charges that use consultancy charging e.g. 0.20%AMC plus 1.8% of regular annual premium for 2 years? Are we saying these will need to be unpicked and put into NEST? How is that TCF?

  21. I agree with Anon 1.30. There is still a huge opportunity for advisers here with smaller businesses. Bearing in mind the fines involved in getting things wrong and the level of complexity involved in determining the contribution levels etc, I think that most employers regardless of size would be able to afford £750 – £1K to ensure that they are meeting their regulatory requirements on AE. If they want advice to employees, they pay for it, I would imagine that most wouldn’t.

    From an adviser point of view, I think that this should be one of the simplest bits of advice that can be given.

    The need is there and by banning CC, the government has just made the advice really straight forward.

    This is what you need to do.
    This is the fine if you don’t do it.
    This is the company that I would recommend that you use.
    This is how the scheme is implemented (maybe an introduction to your accountant might help move things along?
    This is the fee.
    I can review the scheme every year if you like to make sure it is still meeting obligations.
    This is the fee.

    Seems quite straightforward to me and a great way to earn some fees and pick up some new clients. Also, its not regulated advice, which again reduces costs.

  22. Dave | 13 May 2013 11:23 am

    So what you are suggesting is that the employees basically take their chances as to whether AE is best for them and what funds to select.

    As soon as the employees want help you are stepping into the realms of advice which is regulated and the question then is who pays for this and how is it paid for.

  23. So, company A is banned from having a scheme with an initial charge of 1.8% because its called a consultancy charge
    But company B is allowed to have a scheme with the same 1.8% initial charge, er, because its called NEST.
    Awesome. Its a good job these people arent actually running anything important………..

  24. Personally I couldn’t give a rats arse, I cant and wont work for nothing.

    AE is doomed to failure

  25. Tim Griffiths 15th May 2013 at 1:38 pm

    How does this affect St Jame’s Place?

  26. This is a ploy to maximise profitability of the ‘previously’ government funded NEST. There are much better schemes on the open market for businesses of all sizes with lower AMCs and better ROI on GPPs. Advisers will now be going back to chasing old commission paying schemes to take these over and offset that from the cost of advice / technology / SaaS etc. Employees will be left on schemes with a ridiculously high AMC and be much worse off from year 4 onward. You would think that having 4 years to plan for RDR they would have had a suitable solution in place.

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