Employers could face unlimited fines and two years in jail for taking rebates from corporate advisers setting up pension schemes for their employees.
Money Marketing last week highlighted concerns that some corporate IFAs have been providing commission rebates to employers at the expense of pension scheme members who generally face higher charges as a result.
Money Marketing understands some advisers are recommending employers transfer pension funds into new schemes earning the maximum commission of 30-35 per cent of the first year’s premium. They then split commission with the employer. Some cases are believed to involve rebates of more than £500,000.
But a pension lawyer warns that employers could be hauled before the courts under the Financial Services and Markets Act 2000 for performing a regulated activity without authorisation as they are seeking to make a profit by setting up the scheme.
The FSA’s perimeter guidance manual says “to need authorisation you would need to be carrying on the arranging activity on commercial lines.
This means you would need to be expecting to obtain some form of commercial benefit from providing your staff, or a third party such as the intermediary who sets up the scheme for you, with services”.
Fishburns Solicitors partner Harriet Quiney says: “An employer who selects a particular pension scheme on the basis of the amount of commission being rebated could be carrying out a regulated activity and be at risk of unlimited fines and imprisonment.
“I am surprised the FSA has not shown more interest in this dubious practice as employers whose motivation is based on commission rather than finding the most appropriate scheme are clearly not acting in the best interests of their members.”
Standard Life head of pensions policy John Lawson (pictured) says: “Employers are effectively breaking the law and advisers rebating commission are unwittingly leading their employer clients into that breach. This behaviour is morally wrong and the FSA should be doing everything in its power to discourage it.”
Hargreaves Lansdown head of pensions research Tom McPhail says if employers end up getting pursued under the FSMA, then advisers are also likely to have a case to answer.
He says: “They are going to find the FSA asking them some awkward questions or the employer is likely to pursue them for giving negligent advice. Meanwhile, who is standing up for the employees in all of this?”
An FSA spokeswoman says: “We cannot comment on specific circumstances and each case would have to be assessed.”