Pensions minister Steve Webb revealed in March plans to place a 0.75 per cent price ceiling on all auto-enrolment default funds from April next year.
The Government will also ban active member discounts and adviser commission from workplace pension schemes from April 2016.
In response, Standard Life will remove all funded initial commission by the end of 2014 before cutting off commission on schemes with a charge above the cap in April 2015. The provider says where commission is removed this will be reflected in the charge paid by the scheme member.
Where an existing scheme has a charge above 0.75 per cent and no adviser is involved, Standard Life will reduce the price to meet the charge cap.
Aviva will also scrap initial commision at the end of 2014 but will continue to pay ongoing commission until April 2016. Where an existing scheme has a charge above 0.75 per cent the provider says it will consider charging the employer directly.
Where a scheme is staged before April 2015, Aegon will scrap initial commission from April 2015 and continue to pay ongoing commission until April 2016. However, it will reduce the commission rate relative to the reduction in scheme charges caused by applying the AMD-rate to all members.
Friends Life cannot yet confirm detailed plans for ongoing commission. The provider says it stopped offering initial commission six years ago and most of its book is fee-based and below the charge cap. It says it does not expect to have to levy an employer fee to counter the charge reforms but ‘cannot rule it out completely’.
Prudential says it will not release details of its approach until it has “further clarity around the legislation” but could not say which parts of the charge cap rules it wanted to clarify.
Royal London says it expects to release details of its plans “imminently”.
Legal & General also declined to disclose details of its commission plans but says the majority of its schemes are charged below 0.75 per cent already and that it does not expect to implement additional employer fees to cover any shortfalls.
Standard Life will remove all active member discounts for schemes with a staging date after April 2015. For AMD schemes with a staging date before April 2015, a new price will be negotiated on a case-by-case basis.
Aegon says it will also apply the AMD-rate to all members, but will look to introduce an employer fee for some schemes. The changes will come into effect for all schemes from April 2015.
Prudential says it will negotiate individually with schemes on prices following the AMD ban.
Both Friends Life and Aviva have committed to reducing charges for AMD schemes to the lower active price for all members.
Richard Grover, director, Wingate Benefit Solutions
All the employers we have spoken to so far seem to be willing to pay an additional employer fee if it means they can offer something a bit more than the basic model in the sahape of Nest.
At a glance: How providers are implementing the charge cap
- Initial commission removed from end of 2014
- Will cut commission on schemes with a charge above the cap in April 2015
- Will reduce charges on AMD schemes to the lower active price for all members
- Initial commission cut from end of 2014
- Will continue to pay ongoing commission until April 2016
- Will remove all AMDs for schemes with a staging date after April 2015. For AMD schemes with a staging date before April 2015, a new price will be negotiated on a case-by-case basis
- Ongoing commission paid until April 2016
- Will also apply the AMD-rate to all members, but will look to introduce an employer fee for some schemes