Trust-based commission will circumvent RDR without level playing field warns Lowe

Workplace pensions providers will side-step the Retail Distribution Review by focusing on commission-paying trust-based schemes if consultancy charging is banned, warns Zurich pensions management director Dave Lowe.

Lowe warns that unless a level playing field between trust-based and contract-based schemes is created, allowing advice to employers to be deducted from members’ pots in both situations, providers will simply write more business through trust-based schemes paying commission. This could be through both traditional trust-based arrangements and new master trusts.

Current rules allow trustees to pay pension consultants from scheme assets, but the Department for Work and Pensions is seeking information from providers as to the types of consultancy charging structures being discussed with advisers, with a view to potentially banning them altogether for auto-enrolment schemes.

The FSA has already indicated it will not accept consultancy charges on auto-enrolment schemes where they take contributions below the auto-enrolment minimum, making most forms of consultancy charging unworkable say providers. But the FSA has no power over trust-based schemes.

Lowe adds that he believes a reduced role for corporate advisers in the GPP space will potentially lead to less competitive products in the sector as providers will be under less cost and quality scrutiny.

Lowe says: “Providers are paying commission under trust-based schemes may use these structures to circumvent the RDR, particularly given the increase in the number of master-trust arrangements in the market.

“In the corporate pensions space the presence of corporate advisers is a positive thing because it drives the market by creating price competition between providers.

“We need clarity on this issue now – we need a level playing field between GPPs and trust-based pensions because at the moment, with the likelihood of an effective ban on consultancy charging we are going to end up with a situation where pensions consultants can be paid from the fund by the trustees of trust-based schemes, but they can’t be paid out of contract-based ones.”