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Govt faces backlash over auto-enrol active member discount ban

Hargreaves Lansdown has questioned whether pensions minister Steve Webb will be able to deliver on his threat to ban active member discounts for automatic enrolment.

Last month, the Department for Work and Pensions proposed banning AMDs for auto-enrolment from April 2014.

Aviva head of pensions, policy and investments John Lawson claimed the market will “grind to a halt” last week as a result of the proposed ban.

Hargreaves Lansdown head of pensions research Tom McPhail warns the DWP will struggle to implement the ban for contract-based pension schemes.

He says: “If an employer chooses a contract-based pension scheme for auto-enrolment, on a practical level what exists is a contract between the individual and the insurer.

“After an employee has left the company, all that remains is a contract between the individual and the insurer.

“At that point, it is very difficult for the former employer to continue to exercise any control over the level of charges that are imposed on the individual by the insurer.

“Where it gets really difficult is if the employer subsequently replaces that scheme with a new auto-enrolment scheme. At that point, the relationship between the individuals’ former employer and the insurer has entirely terminated.

“How in that scenario will the former employer exert any influence over a pension provider it no longer has a relationship with?”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “The more you look at banning AMDs, the more complicated it gets. The best way to deal with this problem would be to accelerate the implementation of the pot follows member initiative.”

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  1. When the messages to current actives is ” Because of an OFT review and the govt concerns about charges we have to increase your charge and lower that for those who leave ” we will really see the stuff hit the fan.

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