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MM leader: Beware unintended effect of retrospective commission ban

The Pensions Bill to introduce the Government’s state pension reforms had its third reading in Parliament this week.

But alongside proposals to uplift and simplify state provision a number of other significant matters were debated.

A new Government clause would allow for a charge cap for work-based schemes, alongside minimum governance and administration standards.

The Government has proposed an auto-enrolment charge cap of 0.75 per cent, with other options including a 1 per cent cap or a two-tier “comply or explain” cap.

Little was said about dual-charging schemes although pension minister Steve Webb has previously said measures would be included to ensure they have an equivalent ceiling. The charge cap may need to be set out over a certain timeframe to take account of dual charging schemes. For instance, over 10 years Nest is likely to charge an average of 0.67 per cent, falling to 0.5 per cent over 20 years.

Before any cap can be decided, politicians need to be clear what it is covering. Should it be just the AMC, or all associated costs. The consultation paper suggests the Government is considering including all such costs.

ABI research shows the average AMC for new scheme default funds is already 0.5 per cent and some fear a levelling up, although this figure excludes other costs which may be included in the cap.  

Of greater concern is the suggestion that the Government will look to ban all commission on qualifying schemes, a move that would have a huge retrospective impact.  

In last week’s interview with Money Marketing, pensions minister Steve Webb said he was considering such a ban but remains concerned about unintended consequences.

Webb is right to be wary of the effect of well intentioned new rules.

ABI members are quite rightly being forced to review costly legacy schemes. But there are a huge number of GPP schemes written at low cost and including an adviser commission.

Forcing advisers to rewrite such schemes would be an expensive exercise with no guarantee of consumer benefit. It is also likely to burden employers with extra advice costs, possibly leading to lower contributions, or remove access to an adviser for these employees.

Labour’s rejected amendment to force schemes to provide a shopping around service to their members, or refer them to an independent broker, is worthy of more investigation and may be a reason why the NAPF is floating plans to create an annuity broker.

The ABI has moved to increase annuity rate transparency and its code of conduct is a step in the right direction. But perhaps it is time for something more radical to make sure people are making the most of what they accumulate in a pension.

Click here for all our news and analysis on the Government’s proposals 

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