The Big Question – How will a charge cap and AMD ban impact your firm’s clients?

With the DWP vowing to press ahead with a potential charge cap and AMD ban despite the Regulatory Policy Committee’s criticism of its impact assessment, what impact would this have on your clients?

Roy McLaughlin, Master Adviser
Roy McLaughlin, Master Adviser

Master Adviser partner Roy McLoughlin

I have seen schemes which have done the decent thing by getting their ducks in a row ahead of their auto-enrolment staging date who will end up being dumped by their provider.
We are very worried and think that a number of schemes that thought they had a provider that would service them will in fact be forced into Nest.
Insurers will say ‘thanks but no thanks’ and turn them away when they are asked to offer terms to these employers within a price cap.
I feel for providers in one way – they have got to make a margin. But what on earth are we going to say to clients when it turns out the scheme they thought they had in place is no longer prepared to have them?
They will be driven to lower quality solutions with inadequate middleware – Nest offers no middleware support at all. They will then resist paying for it, putting even more pressure on their timetable for complying.

Mark Futcher, Barnett Waddingham
Mark Futcher, Barnett Waddingham

Barnett Waddingham partner Mark Futcher

This is not good news just as the capacity crunch is starting to be felt. Some employers are going to have to find a new provider, which is extra work for everyone. These employers wanted a single provider and thought a year ago that this would be possible. They are now looking at having to use two providers.
Nest are offering very little support and are expecting the payroll providers to step up to the plate.
We have only done AMDs where the deferred member charge is lower than the across the board charge of the outgoing scheme, and have not used it to increase commission, although there are plenty of advisers that have.
For these schemes, if providers come and say that they want the charge for everyone to be somewhere in the middle, we will reject that because providers have always allowed people to keep the active rate if they pay £20 a month into the scheme, so how can moving everyone to a significantly higher rate be fair?
If it is a 0.3 and 0.8 per cent scheme for example, I can see the argument for moving it to 0.4 per cent for everyone, but not any further.

Tom McPhail, Hargreaves Lansdown
Tom McPhail, Hargreaves Lansdown

Hargreaves Lansdown head of pensions policy Tom McPhail

We would not have that much of a problem from an operational point of view because most of the schemes we have put in place in the last year or so have been group Sipps on the Vantage platform. The bulk of them are with funds with an AMC of around 0.6 per cent, although some with the Schroders Managed Balanced fund are nearer 0.8 per cent.
It would not be that complicated to get them below a charge cap if it were introduced quickly, because we have got some funds on the platform as low as 0.1 per cent. Whether that would be in the best interests of the members on the other hand is a different matter.
But I do think that introducing a charge cap as early as the Government has suggested would be recklessly irresponsible and threaten the short-term stability of the pensions industry.
This is not something the Government needs to do right now. It could do it in three or four years time – the consumer detriment between now and then would be tiny with so little in auto-enrolment schemes at this stage.