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What on earth is Scottish Life thinking on consultancy charging?

The Government’s decision to ban consultancy charging was, at best, marginal. When I interviewed Steve Webb on the back of the announcement last month, the only hard evidence he quoted was a piece of research from Which? suggesting providers were willing to facilitate consultancy charges of up to £450 per member for the first year.

The reality is consultancy charging was, in the DWP’s eyes, guilty until proven innocent and the industry was always going to find it difficult to prove advice provided to employers resulted in a “tangible benefit” for employees.

For the DWP to offer the industry clarity on consultancy charging eight months after automatic enrolment had started was lamentable and left the best laid plans of many advisers and providers in disarray.

But to my mind, the intention of the Government’s announcement was crystal clear – we do not want consultancy charging to be a feature of auto-enrolment. Most of the industry got this.

Scottish Life, however, didn’t and published a press release last week with the headline, ‘Scottish Life supports advisers & employers with transition to fee-based model’.

The announcement said Scottish Life had decided:

  • to continue to offer CC for schemes which are in the pre-AE phase;
  • to monitor the use of CC to help ensure that good member outcomes can be delivered;
  • to keep in contact with DWP, and any other relevant bodies, to help ensure that the approach taken is fully compliant with the planned legislation.

I was stunned. In none of the conversations I had with the DWP did I get the impression this was the Government’s intention.

In fact, I spoke to the DWP on the day the consultancy charging ban was announced to find out whether it would be retrospective. Here is its response:

“… given the intention to ban, announced today, and the constructive engagement we have had from the pensions industry over the past months, we would not expect providers to initiate new sales of business including consultancy charges from this point.”

This isn’t even a loophole – it is simply a gap in the announcement which was obviously going to be addressed when the legislation was written. Could the DWP have spelled it out more clearly? Possibly, but then the common sense departments across the rest of the industry seemed to grasp what was going on.

The result was an embarrassing and entirely avoidable rebuke for Scottish Life from pensions minister Steve Webb.

Webb said: “We announced the ban on consultancy charging and a provider says ‘stuff you, until it’s absolutely illegal not only will I carry on with pipeline business, I will write new business as well’.

“Any provider thinking they should carry on business as usual [with consultancy charging] should think again.”

Scottish Life, at the moment at least, is standing by its decision and insists it has been made with advisers’ best interests at heart. But it should remember that Webb decides the rules and, inevitably, will force any consultancy charging arrangements agreed after the ban was announced to be unwound.

That will be a messy business and will drag the industry into further disrepute. As Scottish Widows’ chief executive Toby Strauss said: “It’s time to move on.”



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Flawed assumptions? 5th June 2013 at 5:45 pm

    Got no problems with banning it from the point at which its compulsory, of course, but how is consultancy charging in this case “a feature of auto enrolment” when the schemes that would be set up would clearly NOT be being set up to meet autoenrolment criteria yet? (And if the same scheme can then be varied so that from the staging date they totally comply, then what exactly have the employees lost given that they got something rather than nothing before the date when they had to get something!??)
    To suggest that businesses and consumers should just cow tow to every government announcement of intent means that you might as well also suggest that if they announce a plan to increase tax rates next year, we should all start paying the higher rate now because thats their intention.
    Dont forget, these people are MEANT to serve us – they dont own the place.

  2. Professional Cynic 6th June 2013 at 11:08 am

    re. Flawed Assumptions

    When you say “these people are meant to serve us” who do you mean by “us”? Becuase in any reasonable mind the “us” is the people, not the adviser community or the insurance companies, but everyone. Where something like consultancy charging come along and they decide to ban it, they are serving that wider “us”, because the industry couldn’t prove that there was demonstrable benefit to the individual member.

    By all means, disagree. That’s the whole point of leaving comments open – to provoke debate – but don’t forget that you, like all of us, are a tiny cog in the machine called ‘the electorate’ and that the government are there to serve everyone, not just the industry’s latest idea to screw money out of punters.

  3. The world has gone MAD 6th June 2013 at 11:08 am

    So Webb in his ultimate wisdom thinks if an employer who puts a pension in place 2 years of AE staging date and has CC applied to it, that the employee will suffer detriment? If an emloyer wants to do this now so employees share the costs thats fine. If he feels the employees should not share the costs, he simply declines any pay rise for the next two years to help with the costs of setting up AE. The employees loose out on two extra years contributions from the boss, two extra years of growth over the period of the plan (Those of us who have been around long understand that the biggest bulk of any fund value is made up of contributions within the first 5 years of contributions). How is this a bad deal for the employees? Mr Webb, you are an idiot.

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