Aegon’s offer to pay half an employer’s auto-enrolment contributions for three months is certainly groundbreaking. But opinions as to its appropriateness are polarised.
Depending on your perspective it is either an ingenious way to enable advisers to help employers meet onerous auto-enrolment obligations or a wheeze that drives a coach and horses through the principles that the RDR are based on.
Given the FSA’s current position that consultancy charges must not reduce contributions below the auto-enrolment minimum, the Aegon approach offers the only solution to employers wanting the assistance of an adviser but who do not want to pay more than they legally have to.
Critics of the scheme argue it falls foul of HMRC and FSA rules on a number of grounds.
The main accusation is that the payment of a cash sum to employers who take a scheme from a particular provider runs contrary to the spirit of the RDR, which deliberately sets out to stop bias in product selection.
Aegon says what it pays back to the employer is a reimbursement to cover some of the costs it will have incurred in setting up the scheme, and which have made the effort to engage with advisers to put in place a GPP on its platform.
Aegon says the payments are not rebates of the sort paid by fund managers and insurers to IFAs today, which keep product charges high and then rebate them to the advisers who can then make it look like they are working for nothing.
It points out that the rebate is paid back to the employer six months after its staging date and argues this means it is not possible for advisers to present the payment as covering advice costs, which will have started to be paid up front. That does not stop advisers saying to employers: “Come with me and I can do you something that will deliver better engagement than Nest, and take away the legwork, for no extra cost.”
Another criticism of the scheme is that making the reimbursement payment conditional on the employer paying contributions into the scheme links the two payments in the eyes of HMRC, meaning any ability to claw back that money makes the payment an unauthorised one and therefore liable to a 55 per cent tax charge.
Aegon says it is highly unlikely that an employer would go through the whole auto-enrolment implementation process and pay an adviser to do so, only to switch to another provider six months down the line.
It has also been suggested that the Aegon scheme falls foul of FSA guidance from 2005 that outlaws employers profiting from employees joining their pension schemes. That guidance, Promoting Pensions to Employees, says “you must not be paid commission or receive some equivalent financial reward – such as a reduction in motor fleet insurance premiums – if your employees join your pension scheme”.
Aegon argues this guidance was introduced to give employers guidance as to how to talk to employees about their pension schemes without straying into advice and does not apply to situations where it will be advisers who will be communicating with staff.
Aegon has certainly broken new ground with its cash rebate approach and if advisers feel comfortable with it, it will certainly generate interest among intermediaries operating in the SME market.
Given the mammoth task ahead in getting a million employers over the finishing line, I would not be surprised if even The Pensions Regulator wouldnot mind if this one slipped under the radar.
But in a straw poll at a recent Corporate Adviser event, four out of five advisers expressed the view that they were not confident that the FSA would remain comfortable with the solution if it became industry practice. Over to the compliance experts.
John Greenwood is editor of Corporate Adviser