John Greenwood’s comments on the Office of Fair Trading’s recommendation that commission payments be discontinued where defined-contribution pensions are used to auto-enrol are, on the whole, balanced.
However, I take issue with his statement that the “OFT’s recommendations will doubtless lead to better outcomes for savers in the long run”.
I have looked after a particular corporate client for almost 30 years and organised their original pension scheme 26 years ago. The current scheme is a GPP with a major provider and the maximum AMC is 0.75 per cent, although the average is nearer 0.7 per cent.
There is no discrimination in charges between active and former members and no penalties for early/late retirement, reduction/termination of contributions or transfer to another provider. The employer contributes 5 per cent with no compulsory contribution from the employee, although most do contribute. We offer the full range of advice in respect of the scheme and, as a consequence, receive commission from the provider.
The employer wishes to contractually enrol staff using the scheme and, as an incentive, is considering increasing its contribution to 6 per cent. I have warned them of the possible removal of commission and the decision to increase contributions has been put on hold as this may be needed to subsidise my fees, for which there is no provision in the budget. As a result, my income would fall (who cares?), the company’s expenditure would increase and, worst of all, employees would suffer, possibly being forced to opt out of the scheme altogether.
The OFT is quite right to focus on charges but a blanket removal of commission could have a negative effect.
It should concentrate on overall value when assessing a pension scheme’s suitability for auto-enrolment.
I joined the industry in 1965 (the year the pension minister was born) and I learnt many years ago to accept decisions made by people with little or no knowledge of the business. But I am far more concerned about the almost total lack of support for the IFA community from providers. Only Aviva seems to have registered disapproval of the proposed change. I think we know why.
I may be 67 but I haven’t lost my sense of smell.
Consilium Financial Planning Ltd