The Government is considering a three-year “sunset clause” as part of proposals to ban pre-RDR commission linked to automatic enrolment schemes, Money Marketing understands.
In September, the Office of Fair Trading asked the DWP to consult on banning pension schemes being used for auto-enrolment that contain “built-in” adviser commission or that penalise members with higher charges when they stop contributing into their pensions.
Pensions minister Steve Webb has said this would be considered as part of a consultation on a charge cap.
Implementation of a charge cap has been delayed until at least April 2015.
Aviva estimates a ban could cost advisers £150m commission and put 1,000 adviser firms out of business.
Money Marketing understands the Department for Work and Pensions has now softened its stance on the proposed ban in light of concerns about the effect an immediate ban would have on auto-enrolment.
As a result, it is considering giving firms three years from their staging dates to remove commission. If the rules came into force next April, they would apply immediately for new schemes but existing schemes would have three years from their staging date to change.
Legal & General pensions strategy director Adrian Boulding says: “The DWP is right to take into account that these are real people who have put their own blood, sweat and tears into building a business on what they thought was an acceptable business model. That has to be respected in the timeframe for any ban.”
Aviva head of corporate benefits policy John Lawson says: “This would be good for advisers as it gives them three years to plan for removal. It also gives providers time to plan as we would have to make IT changes, which is not straightforward and could take 18 months.”
Wingate Benefit Solutions corporate adviser Richard Grover says: “A ban would definitely create a wobble in the industry but some firms are more exposed than others. The more time we have to plan the better.”
The DWP says it will be publishing its consultation response in due course.