The Government’s draft rules to ban consultancy charging for automatic enrolment do not go far enough to tackle “back door” payments between providers and advisers, according to Aviva.
Pensions minister Steve Webb has today laid out draft regulations before Parliament to ban consultancy charges for auto-enrolment schemes, following its decision to do so in May.
In a written ministerial statement, Webb says: “Under the draft regulations, a scheme with a provision allowing amounts to be deducted from a jobholder’s pension pot or contributions will not be an automatic enrolment scheme if that amount is to be paid to a third party under an agreement between the employer and the third party.
“These draft regulations will not affect pension schemes where there was a legally enforceable agreement in place between an employer and a third party before 10 May 2013.”
But Aviva corporate benefits head of policy John Lawson points out the draft wording refers to payments between employers and a third party, rather than providers and a third party.
He says although commission is now banned under the RDR, members still pay for things like marketing and communication out of their pension charges.
Members also pay for “blended” fund charges, where employee benefit consultants are paid for constructing a default fund on behalf of an employer by increasing members’ annual management charge.
Lawson says: “There are charges out there which do not appear to be banned by this wording, and you may find there are back door ways around this. Things like blended fund charges and education and communication payments all inflate the charge the member pays, and in many ways these are no different from consultancy charges or commission.
“As the Government is knocking off the sorts of payments that can be made out of pension schemes, it is surprising it has not gone the full hog on this.”
The Government plans to consult in the autumn on extending the ban on consultancy charges to all qualifying schemes, rather than just auto-enrolment schemes.
Draft regulations imposing the consultancy charging ban are expected to come into force by November at the latest.