Existing consultancy charging schemes ‘may need to be unpicked’

Schemes already set up on a consultancy charging basis may need to be unraveled even though the Government has said its ban on the structure will not be retrospective, experts have warned.

Scottish Life head of group communications Alasdair Buchanan says schemes may need to be restructured if new joiners are not allowed to be subject to a consultancy charge, as this would mean original scheme members would have to bear all the costs. Buchanan points out employers would not want a situation where different employees are charged different amounts for their pension.

Scottish Life confirms it has written around 100 schemes on a consultancy charging basis. Aviva says it has written a handful. Aegon has also written some consultancy charging schemes.

Aegon head of regulatory strategy Steven Cameron says advisers and providers need to start examine alternatives to consultancy charging, such as reducing contributions in the early years to pay for adviser fees.

Buchanan says: “These schemes may have to be unpicked because otherwise those first going into it will potentially end up bearing a greater proportion of the cost than those joining later.”

Cameron says: “The next step for the industry is to make sure we continue to promote to employers the benefits of receiving advice.

“We need to start considering the things advisers and providers can do to remove barriers to advice. For example, if an employer has a fixed budget of 6 per cent of payroll for pensions, then they can perhaps pay 5 per cent in contributions in the early years and 1 per cent in fees to the adviser, increasing the contribution to 6 per cent a few years down the line.”

Aviva head of policy, corporate benefits John Lawson says: “Unraveling schemes may create real problems for advisers, because they have a contract with a client for them to be paid, and they will have incurred significant costs themselves.

“But in the long term, advisers should find there is plenty of demand for their services. And employers will be distressed purchasers when they realise what they need to do to meet their auto-enrolment obligations. So advisers may even find they can charge higher fees than they would have been able to get through consultancy charging.