The Government plans to make a final decision on whether to ban consultancy charging for automatic enrolment in March or April.
Under RDR rules, corporate advisers are able to levy a consultancy charge for the work they carry out. This can be deducted from the pension pots of employees who join the company pension scheme.
The FSA has already stated that a consultancy charge cannot reduce the value of a member’s pension contribution below the auto-enrolment minimum of 8 per cent.
However, in November, pensions minister Steve Webb suggested the Government might go further and ban consultancy charging altogether. He wrote to the Association of British Insurers requesting evidence about the way business involving consultancy charges is being structured for group personal pensions.
In the letter, Webb said the Government would decide whether to ban consultancy charging for automatic enrolment once officials had reviewed the evidence.
At the time, adviser firms expressed their anger at the last-minute decision after spending considerable resources preparing for the new rules. Firms have developed their business models assuming consultancy charging will be allowed, with many small and medium-sized employers expected to be unwilling to pay an upfront fee.
One option being considered by policymakers is an absolute cap on charges for qualifying auto-enrolment schemes. If the Government imposed this, it could force advisers to renegotiate previously agreed trail commission terms with providers.
During a Department for Work and Pensions select committee session last week, Conservative MP Graham Evans branded consultancy charging an “absolute joke” and urged the Government to ensure the cost of corporate advice is borne by the employer rather than the employee.
Responding for the Government, DWP head of private pensions policy and analysis Bridget Micklem said: “We need to be able to unpick and understand very clearly what people are putting in the pot they are calling consultancy charges.
“We can then work out what, if anything, is of benefit to members and what is not.
“We are conscious that we need to give clarification quickly, so we will be looking to make a final decision in March or April.”
Webb added: “Our view is consultancy charges cannot be justified if they are not to the benefit of the scheme member.”
Richard Jacobs Pension and Trustee Services managing director Richard Jacobs says: “The Government needs to be pragmatic about this. Consultancy charging needs to be part of the solution for small employers because if it is not, opt-out rates will be significantly higher.”