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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 while some small and medium-sized firms 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 group schemes to be written on a commission basis to continue to be used for auto-enrolment is deluded. 

“If the Department for Work and Pensions 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.

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

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