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Steve Webb: Industry’s consultancy charging solutions were too complex


Pensions minister Steve Webb says the Government banned consultancy charging for auto-enrolment because the “compromise” solutions put forward by the industry would be too difficult to police.

Last week, the Department for Work and Pensions confirmed its intention to ban the charging method for automatic enrolment schemes.

A number of major providers, including Scottish Widows and Aegon, proposed consultancy charging guidelines designed to protect members from excessive fees as an alternative to a ban.

In an interview with Money Marketing, Webb says: “All the compromise solutions put forward were complex and would have given mixed messages to the public. With front-loaded consultancy charges there was also a concern that people who changed jobs would keep getting hit in their early years of membership.”

Some in the industry, including the Association of British Insurers, argue the ban on consultancy charging will put the success of auto-enrolment at risk if it results in small businesses shunning advice.

Asked whether he thinks this is a significant risk, Webb says: “No, I do not. When you look at the smallest firms, the majority are likely to end up in Nest.

“The basic compliance with auto-enrolment is a non-advised process. You ought to be able to comply with the law as required without having to pay someone to advise you.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “Our experience to date is that the vast majority of employers do need some hand- holding for auto-enrolment.”

The Government also plans to consult on introducing a cap on charges for pension default funds in the autumn. Webb says this is necessary to “protect the reputation of automatic enrolment”.

He says: “The reputation of auto-enrolment is like a ming vase. It is going really well but the nightmare scenario is it comes crashing down because of extreme bad practice or poor value.

“When the staging process is completed, there is also the danger that the market becomes very stodgy and employers are unwilling to switch provider.

“At that stage, charges might start to drift up, so one of the attractions of a cap is putting a lid on that risk.”


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Asked whether he thinks this is a significant risk, Webb says: “No, I do not. When you look at the smallest firms, the majority are likely to end up in Nest

    With it’s 1.8% initial charge….

  2. Beggars belief 15th May 2013 at 10:42 am

    So, company A is banned from having a scheme with an initial charge of 1.8% because its called a consultancy charge
    But company B is allowed to have a scheme with the same 1.8% initial charge, er, because its called NEST.
    Awesome. Its a good job these people arent actually running anything important………..

  3. Steve Webb needs to attend a NEST presentation (I did 2 weeks ago) and they implied employers will need help they cannot give. That is NOT regulated advice, but it needs to be paid somehow and the most straightforward way for an employer may be by way of a charge integral to the pension and whilst I agree that should be on top of the minimums, a complete ban now shows how poorly co- ordinated RDR was with Auto enrolment. RDR and auto enrolment, lots of good ideas, but poor implementation due to not talking to, listening and then acting on what grass root small firms say they experience with their employers and their staff, especially this of us who were active pure and during stakeholder launch.

  4. So, the great chinless wonder thinks he knows about our industry does he ?
    Mr. Webb you have not got a clue mate, go back to prep school.

  5. Hmm doesnt NEST have front loaded charges?

  6. Open letter that I sent to Steve Webb

    Mr Steve Webb
    The Pensions Regulator
    Napier House
    Trafalgar Place
    Brighton BN1 4DW

    Dear Mr Webb

    The reasons for writing to you is that it has been reported in the press you are considering banning consultant charges and also capping fees on all occupational pension schemes. I work as an independent financial adviser and it is increasingly becoming difficult for advisers to make a profit in a highly regulated industry.

    So, instead of coming up with broad statements that you are going to ban consultancy charging maybe you’d like to come up with suggestions of how advisers are meant to charge for pension advice.

    After all, we are businesses and have to make a profit!

    Are you really suggesting that all of the costs of setting up an occupational pension scheme for a small company should be borne solely by the employer through direct charges?

    If that is the case then please spell this out, as I am sure that the many small businesses in the UK will be extremely happy with you (not).

    After all this is a compulsory scheme that everybody is going to have to set up and make sure that their employees comply with extremely complicated pension legislation and allowances.

    The fines for not complying with this legislation are scary for employers. E.g., £400 statutory notice and then depending on the number of staff you could receive a fine per day for not complying with the regulations.

    1-4 staff 50 per day
    5-49 500
    50-249 2,500
    250-499 5,000
    500 or more 10,000

    So businesses will not be able to stick their heads in the sand they will have to address this piece of work based legislation.

    This is all very well and fine but this is a considerable amount cost add onto a business particularly as start-ups will become liable for this scheme from 2016 even if you employ one member of staff.

    So instead of coming up with some grandiose statement of banning consultants charging maybe you’d like to come up with suggestions of how advisers can charge and make a profit. Surely, you have a responsibility to make sure that businesses comply with the law and so will need to take advice or are you expecting to turn every small business owner into a pension expert.

    It seems that regulators like yourselves seem to think that advisers should work for FREE, whilst paying high regulator fees to keep you in your highly paid job!

    Since the introduction of RDR we have seen a considerable drop in the number of advisers giving advice in the area of pensions and investment. Instead of continually releasing statements stating that you are going to ban this and cap that maybe you should consider the impact on the adviser profession as we are already seeing a considerable negative effect on adviser numbers due to RDR. Government legislation is already condemning millions of individuals in the UK to no advice and some are now turning to illegal advice givers with drastic consequences to many millions of people’s savings and investments including pensions.

    It is in my view the responsibility of any good regulator to inspire people to save and to make sure that individuals make the right choices and this often means that companies and individuals will need advice. Both the PRA and the FCA seem to think that advice is a dirty word when in fact – good quality financial advice is a life changing experience for many.

    If you need any additional information from an adviser prospective please do not hesitate to contact me. As usual I won’t hold my breath as small advisers like myself seem to be ignored, even though we are the lifeblood of financial advice in the UK. It always seems to me that regulators and politicians like you seem to only want to listen to large conglomerates. I wonder why that is?

    Peter Herd
    Independent Financial Adviser

  7. How about something simple AND transparent, call it commission with a cap of 1%….cheaper than NEST too

  8. NEST has a 1.8% contribution charge AND a 0.3% AMC. The 1.8% contribution charge is meant to be for an estimated “10 years or so” although don’t hold your breath!

  9. Pointless banging on about it and even more pointless and daft to ask Webb to come up with a charging proposition for you too.

    Consultancy charging was and is a completely pants way of charging designed to suit us and not the customer and it’s dead. Good riddance.

    The moaners should best spend their time formulating a decent service proposition that employers will value or bowing out gracefully.

  10. Asked whether he thinks this is a significant risk, Webb says: “No, I do not. When you look at the smallest firms, the majority are likely to end up in Nest.

    Is that Steve because you have just put another hurdle in the way of them being advised about better schemes available to them?

    Still it achieves the Govt’s intended outcome of getting more into NEST – who knows what is planned then?

  11. Terence P. O'Halloran 15th May 2013 at 3:19 pm

    What unadulterated arrogance. Steve Webb is typical of this whole political hotchpotch of pseudo intellectuals endeavouring to micro manage businesses.

    In a recent letter to Mr Webb, which he has not responded to, I pointed out that NEST will draw money out of business and personal resources for no good reason other than political dogma.

    I designed STEPS (NEST in all but name) in 1999 in conjunction with the FSB where I was NI and PENSIONS spokesman for 31 years. STEPS would be introduced on a 1 for 1 percentage replacement for SERPS (S2P) contributions (5.8% band earnings)to provide an invested element to the NI 25.5% of band earning taken by government diktat. 25.5% of band earnings 2/3 of which goes to provide A STATE PENSION.

    Why, I asked Mr Webb, would my 26 year old daughter, wish to pay any more when she has a home to keep, a family to raise and a life to lead? NO ANSWER is forthcoming.

    Small business owners and their employees will be burdened, through aggressive legislation, with an additional overhead that they cannot afford in the current economic climate or otherwise and which is arguably unnecessary. Replace SERPS/S2P with NEST on a 1 for 1 basis, that makes sense.

    Australia has no pension through National Insurance as such nor does Chile, both of which Webb has used as justification for NEST. They are sub 10% employer/ employee funded and wholly market invested; that may well be why their economies are prospering and our economy is not. Nest will end up in fixed interest securities ‘sure as eggs’.

    The FSB gave STEPS to the government – no cost, no charge. Had STEPS operated as a substitute for SERPS from 1978 TO 1998 it would have provided a SURPLUS after all benefits of £332 billion (nine zeros in a billion) in 1998.

    NEST is an impost that is unwarranted and consultancy fees are none of Mr Webb’s business. It is our capital and we will determine our business remuneration. As Mr Webb can see, he cannot even get the fundamentals of investing other people’s money right.

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