The outlook for consultancy charging did not look good before last week’s announcement by HMRC and it looks even less healthy now.
Many advisers had assumed the decision about charging VAT was based on whether the service was purely advice or the intermediation and arrangement of a pension scheme. HMRC disabused them of this notion by stating that “the ‘consultancy charge’ is a fee paid in return for advisory, administration and other services supplied to the employer”.
However, it is not the content of HMRC’s pronouncement which is most astounding but the timing of it.
The level of combined regulatory incompetence over the handling of consultancy charging is staggering. The Department for Work and Pensions, the FSA (now FCA), The Pensions Regulator and HMRC have had as long as financial advisers to get to grips with the RDR but it seems advisers are the only group which has managed to do so.
The pronouncement by TPR and the FSA that consultancy charging must not be applied in a way that reduces employees’ pension contributions below the minimum required by auto-enrolment came very late, just before the start of auto-enrolment. When the DWP joined in and announced an urgent review of consultancy charging a few weeks before the RDR deadline, its timing was robustly criticised.
Now, more than three months in to the new regulatory regime and more than six months after the launch of auto-enrolment, HMRC is the latest authority to undermine the method that advisers operating in the group market have relied on for payment.
The industry is still waiting for the results of the DWP’s review but it is fast becoming irrelevant as it is hard to envisage many employers willing to pick up the whole cost of the provision of advice with a 20 per cent premium.
While HMRC will not concern itself with who will or will not be able to receive advice, the FCA, DWP and TPR should be very concerned that it is becoming increasingly hard for companies and employees to get access to good-quality advice on pensions.
This year is going to be key for auto-enrolment with many providers likely to reach capacity and many employers and employees entering the system for the first time. Whether or not you agree with the concept of consultancy charging, the regulators are running out of time to get a workable system in place to allow advisers to do their jobs.