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Royal London chief warns over uncompetitive corporate pensions market

Robert Sinclair MM blog
Royal London chief executive Phil Loney

Royal London chief executive Phil Loney has called on the Government to address a perceived lack of competition in the corporate pensions market following the removal of consultancy charging for automatic enrolment.

In May, pensions minister Steve Webb confirmed the charging method, whereby fees for advice given to an employer are deducted from members’ pension pots, would not be permitted for auto-enrolment schemes.

Loney says the decision means advisers have less incentive to recommend an employer changes their scheme, even if this is in the interests of members.

Royal London is lobbying for a change to the Pensions Bill which would require the Financial Conduct Authority to put in place an alternative charging regime for group pensions.

Loney says: “The last thing we need is for all this auto-enrolment business to get stuck because if that happens all the benefits will go to the shareholders of big pension companies rather than the members.

“We do not think the corporate pensions market is competitive and we think the biggest hole in that market is the lack of buyer power. The removal of consultancy charging made it much more difficult for intermediaries to operate, particularly at the small employer end of the market.

“As competition develops we need to make sure advisers can still be remunerated for doing the right thing and switching the scheme to one with a lower charge.

“This is something we are lobbying very hard on. We want the FCA to review and put in place a remuneration infrastructure for advisers so they can service this marketplace.”

Corporate Benefits Consulting director Allan Maxwell says: “The problem with commission and consultancy charging was you didn’t know whether advisers were switching schemes in the best interests of members or simply to get paid.

“I think consultancy charging is dead and it is time for the industry to move on.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Renshaw Highland 22nd August 2013 at 3:33 pm

    Surely Royal London as the biggest Life and Pensions Mutual company can come up with a better solution than to lobby government to use members pension pots to pay advisers.

    I thought a key benefit of being part of a “mutual” was suppose to be about receiving a better level of service and value add, always in the best interest of members.

    Quality Corporate Consultants and Advisers ‘should’ and will eventually find their own way to prove their worth and be remunerated accordingly.

  2. Strangely enough Anon, it is the case that Royal London believes advisors are a force for good in the UK market. Of course making it harder for them to help employers and employees to access lower cost schemes does play right into the hands of the main shareholder owned companies that dominate this market. Less switching activity on the demand side of the sector will mean less pressure on the margins of providers just as they are expanding due to the scale economies of auto enrolment. Bad news for scheme members and good news for insurance company shareholders.

    We want the benefits to flow to customers not shareholders. Hence our proposed amendments to the Pensions Bill create a duty for all employers to act in the best interests of their pension scheme members and seek to get the regulator focused on creating a viable advice regime. There is no reason why such a regime has to repeat the imperfections of CC. If an advisor can demonstrate that moving to a lower cost scheme is in the economic interests of all scheme members why is it so wrong for him / her to make a living out of providing this service?

  3. Renshaw Highland 23rd August 2013 at 10:56 am

    Phil – I appreciate the sentiment here.

    I agree the UK market has a long way to go with Auto-Enrolment in its infancy and employers and employees scratching their heads trying to work out what, when, where and who and which?

    Send in the advisors and corporate consultants.

    Do employers have an obligation to select the most appropriate, cost effective pension vehicle for their Employees? I agree. Yes.

    Are advisors geared up to consult and recommend the most appropriate pension vehicle for employers and their employees? I agree. Yes.

    Should these advisors and consultants be remunerated from the pension’s contributions made by employees for the first time under soft compulsion of Auto Enrolment? I disagree. No

    The Mutual model is more ethical than the Insurance company shareholder model. I believe this is the message Royal London as a Mutual should focus on getting out to the market.

    “From little things big things grow”

    Let’s consider our Australian extended family who have proven how a successful second tier pension model can develop on the back of a mutual proposition.

    Industry Occupational Superannuation Funds run only to benefit the retirement of members. “We do not pay commissions”. These Superannuation Funds operate on the mutual model and are some of the largest globally.

    Quality advisors and consultants will present a detailed statement of advice to an employer and in recommending a mutual pension provider over the dominant insurance pension provider can certainly highlight the low fees associated as a key sell. But this only forms one small part of the recommendation. The advisor will almost certainly need to include the quality of investment partners and investment options, the return on investment and strategy within the pension. What other benefits does the mutual provide? Why is the mutual scheme right for that employer and its employees?

    To get benefits flowing to customers, I say Royal London needs to focus on what additional services you can provide to customers which might truly add value to their lives as they save towards retirement and which will benefit them in the long run.

    Let’s leave their pension pots alone.

  4. to the second anon, Nest and Now Pensions build in an admin cost for running the pension, this fee comes out of the members pot, final salary schemes and trust based schemes cover costs from the fund, why not auto enrolment schemes?? Yes they need to be reasonable and governed but as the main article here is trying to point out, there are schemes that need changing and updating. Without remuneration from the scheme employers are not inclined to pay for the work that needs carrying out.

    We have recently inherited a 1% scheme run by a large insurer without commission terms, they have invited the employer to auto enrol into that scheme when nest is far cheaper. We could and should be advising a whole new scheme as its in the members interests but the employer is not in a position to pay the fees required. If we do nothing the D2C provider will make substantial amounts in annual management charges, I am sure this is happening every day at the moment….

    There still seems to a lot to work out and I also believe that banning consultancy charging was not the totally the way forward…

    As we get down to the smaller employers they will desperately need advice and in some cases will not be able to afford to pay for it on top of the 3% of payroll they are currently facing…

  5. Hello again Anon and thanks for the trip “down under”. I agree the Aussie model is interesting to learn from but I’ll have to leave that to another day.

    Turning back to the UK can I just point out that the assumption that a new advisor reg and rem regime would be heavily dependent on deductions from member pension pots is your own assumption and not one that I share, for 2 reasons:

    1. As explained in my previous post we are looking to enshrine in law a responsibility for employers not just to choose a good scheme as part of AE but to act in employee interests thereafter. This creates a context where I would expect employers to be the mainstay of advisor remuneration, but hopefully encourages greater consistency across employers.

    2. The review should be done by the FCA due to their conduct and competition responsibilities and so be an approach designed to optimise outcomes for scheme members.

    As part of its review the FCA would need to grapple with the reality that perceptions of what is ethical often depend on your starting point. For instance is it really fair that those who benefit from the results of advice make no contribution to its cost? This is the classic “free lunch” argument. There is of course “no such thing” and the small employers who have to pay the cost in total at the moment would say that this is not ethical. Your point of view on this will ultimately be driven by how you see the extent of the employer’s obligations in this space. So there are a range of arguable positions on what is ethical, which is often the case in our sector, and a good reason to get our conduct regulator to balance these interests.

    As to expressing Royal London’s mutuality we are doing this by making our pension scheme customers members of our society, sharing substantial mutual dividends with eligible members, providing a highly rated and good value pension offering, good investment performance and free services for customers and members like I’ll happily take on board your encouragement to do more.

    One more thing. Your contribution is thoughtful and intelligent and I have valued our exchange of posts. Why not “come out” from behind the Anonymous tag?

    Have a great bank holiday weekend.

    Kind regards


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