“…you just have to avoid unintended consequences. There is always a risk that you squeeze the tyre and something else just pops up, so you just have to know what you are doing.
“We know a certain amount but we need the market, including providers and schemes, to tell us more about what the impact would be.”
Pensions minister Steve Webb, Money Marketing, October 2013
Government interventions into the UK pensions market are fraught with danger – tighten up on one perceived problem and three more can sprout up as a result.
To ensure the positive impact of any reform is not outweighed by negative unintended consequences, policymakers therefore need to adopt a degree of pragmatism.
With this in mind, pensions minister Steve Webb deserves praise for softening his stance on capping charges and banning commission for automatic enrolment.
On the charge cap, Webb recognised his original timetable for implementation – which would have given firms weeks to prepare for the change – was overly ambitious. The reforms have been pushed back until April 2015 at the earliest, although sources suggest the cap may not be introduced during this Parliament.
The delay, while politically damaging in the short-term, is sensible, providing businesses with breathing room and ensuring the fragile reputation of auto-enrolment is not unnecessarily put at risk.
Webb’s pragmatism is also reflected in the DWP’s approach to built-in adviser commissions. This week’s Money Marketing reveals policymakers are considering a three-year “sunset clause” as part of proposals to stop these schemes being used for auto-enrolment.
This would mean that, rather than pulling the rug from under advisers and employers as the Government did on consultancy charging, they would be given three years from their clients’ staging date to comply with the ban. If the rules came into force next April, they would apply immediately for new schemes.
All of this could have been avoided, of course, if politicians had addressed the issues relating to scheme quality before auto-enrolment and the RDR had been introduced.
It is also worth remembering that two parties are involved in agreeing to set up a pension scheme on a commission basis – the employer and the adviser.
So while recently published DWP research appears to suggest a substantial increase in the number of schemes written on a commission basis in the run-up to the RDR, we don’t know whether this was driven by advisers’ intent on boosting their income or employers keen to avoid paying an upfront fee.
Either way, these schemes were set up in accordance with the rules at the time, before the DWP had given any indication that commission could be deemed unacceptable for auto-enrolment.
But if the Government is intent on tackling commission after the event, giving advisers – upon whom the success of auto-enrolment rests – a three-year transition to comply with a ban seems like a proportionate way to do it.
Tom Selby is deputy head of news at Money Marketing