The Government is investigating whether trustee-style safeguards can be introduced to protect savers in contract-based schemes as an alternative to banning consultancy charging.
Pensions minister Steve Webb wrote to the Association of British Insurers in November requesting evidence about consultancy charging structures and threatened to ban the charging method under auto-enrolment rules.
Money Marketing understands the DWP is now looking at the role of trustees in trust-based pension schemes as it considers alternatives to an outright ban.
Officials are understood to be analysing the extra protection a trustee provides to scheme members when a consultancy charge is proposed.
A source says: “Most providers are already saying you cannot do a consultancy charge if it stops the product from being good value for money.
“But in a trust-based scheme the trustees have a fiduciary duty to look after members’ interests and make sure all of the money is being used to benefit the member.
“So you have regulatory arbitrage because a consultancy charge that is OK under a GPP might fail the trustee test.”
Legal & General pensions strategy director Adrian Boulding says: “On our master trust, our trustees have taken the view that if a consultancy charge proposal is put to us we are happy to entertain it provided it is clear that the money is benefiting the members.
“That is where the DWP has said it wants to get to for contract-based schemes so it makes sense to examine this for consultancy charging.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “As well as the positives of the trust-based model I think the DWP will want to make sure trustees are asking the right questions of advisers and employers in relation to consultancy charging.”
National Association of Pension Funds head of research Mel Duffield says: “The DWP has recently asked for our views on consultancy charges and we will of course be helping with its enquiries.”
A DWP spokeswoman says: “We are carrying out an urgent review of the interaction between automatic enrolment and consultancy charges and will make an announcement in the Spring.”
An FSA spokeswoman says: “A consultancy charge should only be levied where there is a tangible benefit to the member.”