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Govt to make auto-enrolment consultancy charging decision by April

Steve Webb

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 will decide whether or not to ban consultancy charging for automatic enrolment once officials have reviewed the evidence.

At the time adviser firms expressed their anger at the last minute decision after spending considerable resource 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 did this it could force advisers to renegotiate previously agreed trail commission terms with providers.

During a Department for Work and Pensions select committee session earlier this 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.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Roman Duzinkewycz 25th January 2013 at 9:07 am

    So, the bottom line for the employee is that smaller businesses will say ‘no, not paying any fees, I’ll have the minimum I can get away with thanks’.
    They can obviously choose to do very little but who loses in the end? Surely can only be the employee?
    Left hand, this is right hand. Has Mr Webb worked for the FSA at some time in the past? His lack of forward planning and judgement seems to fit their remit very well indeed. I wonder what will be next – surely the death of the Financial Services Industry – no, even better, let’s all work for nothing. Perhaps I’ll move into Estate Agency…………..

  2. What a bleedin’ mess. The truth is that the government don’t want people to take advice on NEST in case people realise, in many instances, the right decision is to opt out.

  3. What an absolute joke Webb is – he is absolutely clueless. The saying ‘Fail to prepare, prepare to fail’ springs to mind. He has no idea whatsoever – so keeps making up policy as he goes along until he thinks he’s got it right, but just causes yet another problem. How long has he known Adviser Charging would be implemented, how many people on these Blogs warned of the dangers and possible pitfalls, did he listen – no.

  4. we have been down the cap route before. it doesn’t work

  5. And these people are in charge of the economy – make it up as they go along (including the previous bunch).

    How can businesses plan when things seem to change every few months?

  6. The main frustration here is predominantly that this is so late in the day……

    We have clients and businesses approaching us on this matter and the main difficulty is that whilst we can give the facts concerning AE etc, the practicalities of how they prepare for it and how we might assist them is up in the air given that we don’t know precisely what will be ‘acceptable’ to the FSA/TPR.

  7. It infuriates me that the Givernment can be so blind to the fact that many small to medium sized employers are unwilling to pay for advice. By banning consultancy charging this will mean employers who are unwilling to pay for advice will default in to Nest – surprise surprise Not !!! This has always been the main objective for Mr Webb and his corrupt Government – to say it is unfair for consultancy charging is hypocritical – remind me, what are the charges for NEST? 1.8% of every contribution made for a minimum of 20 years plus 0.3% AMC – I make that 2.1% charge in the first year – and they are saying an AMC of more than 1% is poor value !!!!! Get real – politicians should stop meddling in things they clearly do not understand !!!

  8. It infuriates me that the Givernment can be so blind to the fact that many small to medium sized employers are unwilling to pay for advice. By banning consultancy charging this will mean employers who are unwilling to pay for advice will default in to Nest – surprise surprise Not !!! This has always been the main objective for Mr Webb and his corrupt Government – to say it is unfair for consultancy charging is hypocritical – remind me, what are the charges for NEST? 1.8% of every contribution made for a minimum of 20 years plus 0.3% AMC – I make that 2.1% charge in the first year – and they are saying an AMC of more than 1% is poor value !!!!! Get real – politicians should stop meddling in things they clearly do not understand !!!

  9. Unfortunately NEST will provide no support to the employer in navigating the hopelessly over-complicated rules and processes that surround AE. It certainly won’t send someone round to talk to the employees and educate them about why they need to save for retirement.

    The end result will be employers failing to meet their obligations, high opt-out rates and those who do stay in reaching retirement only to find that the minimum contributions they’ve been paying are totally insufficient to support them.

    On the other hand, if an employer fully understands what they’re facing with AE and an up-front fee is the only payment option open to them, I’m inclined to believe that the majority would pay up. I can’t read the regulations surrounding AE without swearing repeatedly under my breath and, if I was a small/medium employer I’d sell a kidney if it meant that someone would come along and take a significant portion of that complexity away for me.

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