The Government’s charge cap consultation closed last week with a huge divergence of opinion between respondents.
Many have raised concerns that the Government’s proposed cap of between 0.75 and 1 per cent could lead to a levelling up or employers cutting contribution levels.
A retrospective ban on commission could hit employers already struggling with the demands of auto-enrolment hard and is unlikely to lead to much benefit for most employees. The average pre-RDR GPP AMC charge is 0.77 per cent and many are much lower.
A number of insurers are lobbying against a rigid charge cap but privately admit that, given the wider political emphasis on living costs, they are unlikely to succeed.
At the very least, they are hoping for a three-year transition. It is currently proposed that the cap is introduced from next April, for all employers staging then, before extending to employers who have already staged by April 2015. Forcing firms already struggling to deal with auto-enrolment business to rewrite up to 90,000 schemes in a short period is unrealistic.
Legal & General is one of the few providers to break ranks, instead lobbying for a reduction in the charge cap to 0.5 per cent.
But as Money Marketing reports this week, there are some concerns L&G might not be too interested in the smaller end of the auto-enrolment market, where meeting a rigid charge cap becomes harder.
L&G told one adviser we spoke to that it was not offering schemes to employers with less than 50 employees and where the average monthly contribution is less than £200. L&G says this was an error of communication, although other advisers have reported similar communications.
Its vocal call for a 0.5 per cent charge cap will carry far less weight if it is not prepared to write business on this basis in certain, less profitable, areas.
As politicians begin to gear up for the May 2015 general election, and with Labour leader Ed Miliband scoring a number of recent victories on energy and payday lending, it is evident the cost of living agenda is likely to dominate, including in pensions where the Government is wary of being outflanked by Labour.
The Office of Fair Trading-ordered review on legacy schemes should go a long way to weeding out unacceptable historic charges. But if a cap is unavoidable, it should be set at a realistic level, with no costly retrospective action on schemes with built-in commission operating with charges below a certain level.