Two big challenges for 2013 are the RDR and auto-enrolment, but it is comforting that the pensions industry and its advisers seem ready to meet any problems that crop up.
However, even now there are some major issues still to be addressed.
Take consultancy charging. In June 2012 the FSA announced “a consultancy charge is not permitted to reduce the effective contributions to an automatic enrolment scheme below the minimum amounts”.
This was a surprise but not seen as a problem as the DWP’s legislation allows charges to be taken from auto-enrolmentschemes in this way. We understand the FSA wants this to apply to all auto-enrol schemes, regardless of legislation.
While this does not mean consultancy charging cannot be taken from auto-enrolment schemes, it could mean advisers will have to think about how they are paid more carefully. For example, will they ask the employer to pay a higher contribution to cover the cost of advice, or charge an explicit fee? If not, can contributions be continually monitored to make sure that the cost of advice does not reduce contributions below the minimum level?
The bigger question might be more basic: will employers be willing to pay an explicit fee, or pay more than the legislation requires, to meet the costs of advice and other services? The danger is that employers unwilling to do so could be disenfranchised from advice. In the absence of any other option, they could end up using a direct scheme that might not be suitable for them or their employees.
Over the past few years, providers and advisers have been preparing for RDR and automatic enrolment, spending time and money changing the way they work so that they can remain profitable in a post-RDR landscape.
Employers too are getting the message and a lot of the credit for this must go to advisers. They have been busy contacting their existing clients, hosting seminars and making the most of their professional connections. The DWP’s advertising campaign has also helped, leading to an increase in enquiries and new business written in the corporate pensions market. In 2013, as thousands more employers approach their staging date, this interest will only increase.
If automatic enrolment is to be successful, advisers must be allowed to continue to play a key role in delivering the help and support, as well as the pension scheme, that best suit the needs of their clients. That is why I believe the FSA needs to think again about the practical implications of its proposed approach.
Jamie Clark is business development manager at Scottish Life