At least the Department for Work and Pensions didn’t wait until New Year’s Eve to pull the rug from under those advisers looking to operate consultancy charging next year. But that is probably the only consolation available to anyone who has spent time and money getting their business ready for the rules the FSA told them to prepare for.
I have no problem with the DWP’s motives for intervening in consultancy charging. Everybody knows it is a flawed proposition. But like pretty much everyone else who has had anything to do with consultancy charging, I find it incredible just how late they have left it.
The DWP should have had a position on consultancy charging years ago. Yet it has remained behind the curve throughout the whole process. Now it has left it so late to intervene that a lot of hard work will have been done for nothing.
Pensions professionals are already taking bets on when the whole auto-enrolment roll-out process grinds to a halt. Some are saying as early as next summer, when everyone goes on holiday. I have heard others predict the first or second quarters of 2014, when the numbers of employers hitting their staging dates grows exponentially. The Pension Regulator says employers should start preparing a year in advance, which by my reckoning is a few weeks from now.
Like the mops carrying buckets for Mickey Mouse’s Sorcerer’s Apprentice, auto-enrolment will spew out ever more employers in search of pensions advice. But who will be there to service them?
I agree that automatically enrolling people into schemes with high consultancy charges is not a good idea. But we should have been looking at working out a better solution literally years ago because there will have to be some sort of solution if auto-enrolment is not to be a complete disaster.
Pensions minister Steve Webb’s letter to ABI director general Otto Thoresen reveals just how far behind the DWP is on this story. Five weeks before the consultancy charging rules take effect it is having to ask the ABI for detailed information about how charges are set to be deducted – because it does not know itself.
The DWP has been off the pace on the RDR since day one. It is nearly three years ago that I was in what I thought was the august presence of the DWP’s head of personal accounts, as it was then called. When I asked how he thought the RDR might impact distribution of pensions, his answer was, and I kid you not, ‘what’s the RDR?’.
As recently as May this year a DWP spokesperson confirmed on the record that a consultancy charge of 100 per cent of an employee’s first year’s contributions would be acceptable. I only asked the question to show up the flaws in the system. I did not think their grasp of what had been dreamed up by those down the Thames at Canary Wharf would be quite so basic.
And the FSA’s role in this is probably worse. It created consultancy charging but now it says it doesn’t want it for ‘auto-enrolment schemes’. It says this as though there is some special breed of group pension out there that is not an auto-enrolment scheme that this wonderful consultancy charging creation can go and be used on. They are all auto-enrolment schemes now. So why did it ever think consultancy charging would work?
With hindsight maybe the best plan for the government would have been to leave group pensions out of scope of the RDR until auto-enrolment is implemented and use its charge-capping powers to protect consumers.
Providers must already be thinking that maybe getting rid of consultancy charging could lead to the unraveling of legacy commission. I have not seen any howls of complaint from providers at Webb’s intervention. If that happens, the Government would surely want to see consumers getting the benefit and not providers.
I have no crystal ball to read the future. But I do know that properly addressing this problem should by now be firmly in the past.
John Greenwood is editor of Corporate Adviser