Providers and advisers have warned the FSA that its stance on consultancy charging for automatic enrolment risks creating a damaging advice gap for small and medium sized businesses.
Under RDR rules, advisers who advise employers will be able to levy a consultancy charge for the work they carry out. This will be deducted from the pension pots of employees who join the company pension scheme.
The FSA is insisting that a consultancy charge does not reduce an individual’s total pension contribution below the auto-enrolment minimum of 8 per cent.
Aegon head of regulatory strategy Steven Cameron says: “Employers that are looking to do the bare minimum under auto-enrolment will now not consider seeking advice, because if they do they will have to pay separately for it.
“Advisers will therefore avoid approaching employers that they think will not be prepared to pay more than the auto-enrolment minimum because they know they will not be able to find a way of paying for the advice they provide. The FSA’s stance will open up an advice gap.”
Legal & General pensions strategy director Adrian Boulding says: “My concern is around the second quarter of 2014, because that is when we will get a bulge of around 30,000 employers with between 62 and 249 employees. This is exactly the size of employer that traditionally would have looked for an IFA funded by commission.
“If we arrive at a position where the consultancy charge is unworkable then these employers might not access financial advice.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “It is a disgrace that automatic enrolment has started and we still do not have absolute clarity on consultancy charging.
“It will take a huge amount of marketing skill to convince small and medium sized employers who are auto-enrolling at the minimum to pay a fee for advice.”