The Government has been forced to clarify its stance on consultancy charging for automatic enrolment after an FSA newsletter caused confusion among pension providers.
Last week, the regulator issued a newsletter which said a consultancy charge cannot be levied on an auto-enrolment group personal pension if the employer is paying the minimum contribution.
Once auto-enrolment has been fully rolled out in 2018, the total minimum contribution to a workplace scheme will be 8 per cent of a band of earnings.
The FSA said: “Where a group personal pension is being used for automatic enrolment, the minimum contribution levels are net of consultancy charging, i.e. a consultancy charge is not permitted to reduce effective contributions to an automatic enrolment scheme below the minimum amounts.”
The statement led to confusion among insurers about whether a consultancy charge could be levied if an employer enrols its workers at, or close to, the auto-enrolment statutory minimum.
Money Marketing understands the Association of British Insurers wrote to the DWP to clarify the issue. The DWP has now confirmed that a consultancy charge cannot be levied if it reduces a member’s contribution below the auto-enrolment minimum but can be levied once that contribution has been paid into a pension.
A DWP spokeswoman says: “Charges can be levied on pension contributions once they have been received by the pension scheme. This a common approach used by pension schemes currently.”
Aegon head of regulatory strategy Steven Cameron says: “What has now been confirmed was always what we understood to be the case and is definitely the right solution.
“It will mean that employers who are engaging with pensions for the first time are able to seek advice, both on fulfilling their legal obligations and choosing the right scheme for their workforce.”
Legal & General pensions strategy director Adrian Boulding says: “It is extremely valuable and helpful that the DWP has clarified what was a very woolly statement from the FSA.”