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Pre-RDR commission under threat as Govt bans consultancy charging

The Government could target auto-enrolment schemes written on a commission basis pre-RDR after pensions minister Steve Webb set out plans to apply the ban on consultancy charging retrospectively.

New legislation banning consultancy charges in auto-enrolment schemes came into force on 14 September. The rules only applies to deals agreed from 10 May, when Webb announced his intention to ban the charging method.

However, the Government will consult in the autumn over whether it should extend the ban to cover schemes which already had a consultancy charging agreement in place before 10 May.

Legal & General pensions strategy director Adrian Boulding says: “The issue is that while some SMEs will take the welfare of their employees very seriously, others regard their staff as just a business cost.

“If they have an historic arrangement where an adviser is helping the employer and the adviser is paid by the employee through commission, some employers would not want to disturb that.

“I think the Government will ultimately end up legislating to prevent that happening.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Anybody who believes the Government will allow GPPs written on a commission basis to continue to be used for auto-enrolment is deluded. 

“If the DWP is of the view that consultancy charges should not be a part of auto-enrolment then why would commission be allowed to continue?

“This could cost providers a fortune in IT system changes.”

In November last year, Money Marketing revealed the DWP was looking at whether a ban on consultancy charging could apply to schemes which had already been written.

At the time, a Government source said it could use a planned cap on auto-enrolment charges to force advisers to renegotiate previously agreed consultancy charging deals.

The DWP will consult on introducing a charge cap later this year.



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I fear Mr Reid may be over reacting…

    Consultancy charge is a specific and sometimes substantial amount taken out of a pension fund – normally, but not exclusively in the first year or two. It therefore has an immediate and negative effect on transfer values and growth

    Commission on the other hand is funded out of a plan’s AMC; one that is often lower than the AMC charged by NEST which does not pay commission and which is also subject to clawback in the event of early transfer…

    I think the govt might have a real problem trying to take commission out of existing GPPs when many of these plans already charge less than the govt’s non advised flagship.

    However they may get away with it if advisers and the press start talking about commission and consultancy charge as if they are the same thing or similar in operation when they are NOT!

  2. I do a lot of things but I do not over react; the government can simply state that commission based schemes do not qualify as AE schemes. Employers will in many cases stop schemes and put in place new AE schemes – result claw back, or they can keep the scheme as it was pre AE and put a new one in place for AE.
    Setting up schemes for a limited number of employees in an effort to enable commission post RDR when a greater number would be auto enrolled was always going to hit the buffers.
    I am not even going to comment on your comparison of commission v consultancy charging as the numbers never did add up commercially.

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