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Which? calls for auto-enrolment consultancy charging ban

Steve Webb 480 NAPF 2012

Which? has written to pensions minister Steve Webb urging the Government to ban consultancy charging for automatic enrolment.

Consultancy charging was devised by the FSA to allow advisers to charge employees’ pension pots for advice given to the employer.con

However, the future of consultancy charging for auto-enrolment is unclear. In November, pensions minister Steve Webb wrote to the Association of British Insurers saying the DWP was launching an “urgent review” into the charging method and is considering banning it altogether.

In January, Which? conducted a mystery shopping exercise which revealed insurers are willing to accept consultancy charging fees of up to £450 per member for the first year.

Which? followed this up in March with a survey of 745 UK employed adults, aged under the state pension retirement age and earning over £8,105.

The survey found 63 per cent of people who are not currently contributing to a workplace pension and are eligible for auto-enrolment would be more likely to opt-out if they were hit by high consultancy charges.

In a letter to Webb, Which? chief executive Peter Vicary-Smith says: “Consumers have absolutely no power to reject these charges. They will be automatically enrolled into these schemes and if they believe the charges are excessive their only option is to opt-out and lose the opportunity both to contribute to a workplace pension and receive employer contributions.

“Which? believes urgent action is necessary to protect consumers and ensure that they get a fair deal. We hope your review will result in a ban on the practice of member-borne consultancy charges.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “If we ban consultancy charging there is a risk small firms that cannot afford to pay for support from an adviser will not engage.”


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There are 16 comments at the moment, we would love to hear your opinion too.

  1. Presumably NEST will meet these people’s requirements exactly without the need for advice.

    Good luck

  2. The simple answer for small businesses is to use a retail master trust to set up a single scheme for a group of companies through an accountant using their payroll service . They in turn use an IFA ,in house or external , to provide the advice,for an agreed fixed fee . This keeps cost per employee very low , but allows the adviser to be paid for his time! Why do people like which? not know this ?

  3. @Anonymous: your suggestion to use a master trust scheme looks sensible – we have predicted previously that there will be a market emerging for group advice services for small firms’ AE needs. This type of arrangement, coupled with automation and standardisation of the operational processes and data handling will be key to keeping costs down for small firms and their enrolled workers.

    Nonetheless, Which? are right to highlight the risks of high consultancy charges. Unless given the right guidance, small firms could place their workers in a scheme where they face losing their first year’s contribution entirely in charges for advice given to their employers; not an ideal situation especially for businesses with high staff turnover.

  4. Surely adviser charging should be allowed against all products as at present providers are not allowing adviser charging against old-style contracts that they quite prepared to turn off the commission if any alterations done to that contract.

    This will therefore mean that some advisers will recommend clients switching products to an RDR charging ready product as clients don’t want to pay the fees out of their net salary rather preferring instead to have it deducted from product. I am a supporter of the RDR process but I suspect that this could be the next miss selling scandal if regulator does not force providers to allow charges on legacy policies.

    Can my new client who is earning over £140,000 a year and has a pension pot of nearly £1.5 million sue Which for this idiotic proposal, as a obviously think that advice is not going to be needed for the new Nest regulations. This particular client is going to have to take out fixed protection when the lifetime allowance drops to 1.25 million. In fact quite a lot of NHS staff and other public workers could be in a similar situation and if they receive additional pension contributions they could find themselves with a considerable tax charge when they take their pensions.

    So I’m afraid which has got this horribly wrong as they may be able to provide information via their online presence and website but personalise financial advice particularly in the area of pensions is definitely necessary and IFA’s need to be remunerated. Why should small businesses be the one to pick up the bill – Which are just thinking about their own business model and not for British business as a whole.

    By the way last time I checked which don’t hold authorisation pensions:

    527029 – Which? Financial Services Limited
    Activity Name: Advising on investments (except on Pension Transfers and Pension Opt Outs)

    Investment Instrument
    Non-investment insurance contracts

    Customer type
    Retail (Non-Investment Insurance)
    Activity Name: Advising on regulated mortgage contracts

    Investment Instrument
    Regulated mortgage contract

    Customer type
    Activity Name: Agreeing to carry on a regulated activity

    Limited to carry on regulated activities.

    Activity Name: Arranging (bringing about) deals in investments

    Investment Instrument
    Non-investment insurance contracts

    Customer type
    Retail (Non-Investment Insurance)
    Activity Name: Arranging (bringing about) regulated mortgage contracts

    Investment Instrument
    Regulated mortgage contract

    Customer type
    Activity Name: Making arrangements with a view to regulated mortgage contracts

    Investment Instrument
    Regulated mortgage contract

    Customer type
    Activity Name: Making arrangements with a view to transactions in investments

    Investment Instrument
    Non-investment insurance contracts

    Customer type
    Retail (Non-Investment Insurance)

  5. If someone comes to us for advice and we give advice then we are liable for the rest of our lives for the advice given. I suppose the cost of network fees, PI and every levy under the sun will disappear and everything will be free and lovely in the Which garden. Of course we can also work for nothing just like the do at the charity called Which.

  6. Just like C/O SERPS, the government is trying to put the onus on advice concerning NEST and its suitability to clients needs in to the responsibility of advisers.

    Steer clear of NEST is my view, make no comment on it, do not assist any business or client to implement it and don’t give clients advice on it, it is the most idiotic, badly designed, costly scheme anyone could have come up with and of course in years to come, those IFAs who survived the RDR cull, will have to pay up for alleged unsuitable advice on a scheme under which the advising sector has no control.

    This is a screw up waiting to happen, beware of it, steer clear of it, don’t get engaged with it at all, make clear that this is not a regulated retail product as we know it Jim

  7. The commercial enterprise known as Which? that gives the impression it provides free financial advice when receiving commission really should keep its mouth shut.

  8. I don’t know if anybody picked up on what I was trying to say – WHICH do not carry pension authorisation so why is there comment as an expert been publicised!

    And more importantly why is the regulator listening to an unauthorised firm!

    As far as I’m concerned WHICH can only give recommendations on mortgages and non-investment contracts. As above

  9. I’m with Ned on this one.
    Is this the same witch, sorry which? that made a packet on an energy supply deal for it’s members?

  10. How can WHICH have 19 pages of detailed information on pensions and not have FSA authorisation in that area?

    Double standards!!!

  11. Thousands of people bought Equitable Life Pensions because of Which best buy tables

    These people saved a few pounds commision to nasty old pension salesmen but lost hundreds of thousands due to Which’s “advice”

    When the brown stuff hit the fan Which was nowhere to be seen.

    Maybe our Pensions Minister should be reminded of this as its his Government that is compensating Equitable Life policyholders NOT Which!

  12. @ST, sorry not sticking up for which, but while they have not auth to do pension TFS & opt outs they appear (according to your post) to have invest/pension with.

  13. Phil Castle

    Sorry it is just the way that I copied and pasted it from FCA register. They are not auth for pension at all.

  14. So, ‘Simple’, which bit of what Which is saying is wrong? Do you think its ok to take virtually the entire 1st year contribution of a worker?

  15. Rachel Pierson 29th May 2013 at 10:16 pm

    It’s bad enough that these scumbags have persuaded their cohorts in government to allow them to inertia sell pensions that nobody wants to buy. Now they want to charge victims for the privilege of being signed up to schemes we have no interest in? As for those “advisors” that small companies may not be able to afford. Don’t make me laugh. These con men would willingly pay for the chance to inflict their “advice” on employees. I personally give them short shrift. I’m even less interested in listening to their self-serving drivel about “giving up free money” than I am in taking out their shoddy product in the first place. Tell the victims of the many pension schemes that have collapsed about all that “free money” and see the reaction you get. These people are parasites. Nothing more, nothing less. Their products are so attractive and so much of a no-brainer that they actually have to persuade government to inflict them on workers rather than being able to sell them on their actual merits. And if even if you say “no” in the clearest possible language, they have made a deal with politicians that allows them to sign you up without permission again every two years. Think about that. Who has to market their product that way? If these scheme were actually of any value whatsoever they wouldn’t need to force them on their victims. There’s a reason nobody is buying what you are selling, pension scheme organisers: your products are simply not worth the paper they are written on.

  16. Thanks to regulation and government, there is a much simpler reason why nobody buys regular pensions or savings plans and that is nobody sells them because there is no worthwhile marketing incentive to do so !

    Still MAS will take up the slack and ‘talk’ to people and immediately everyone will go out and buy a retirement plan and hey presto no more savings/pensions gap !!!!!!!

    Do they really still believe that ?

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