Pension minister Steve Webb’s eleventh hour threat to ban consultancy charging signals the beginning of the end for the controversial remuneration method say advisers.
Webb has written to ABI director-general Otto Thoresen demanding an explanation of how consultancy charging will work, just five weeks before the Retail Distribution Review is set to come into effect, saying he is ‘increasingly concerned about the way consultancy charges might interact with auto enrolment’. Webb says he has received representations calling for an outright ban on consultancy charging for auto-enrolment schemes. He adds his department is ready to carry out an urgent policy review that could lead to a ban on consultancy charging. The full text of the letter is set out below.
Advisers now face the prospect of unravelling consultancy charging arrangements already set up with employers in preparation for January’s launch of RDR.
Steve Herbert, head of benefits strategy at Jelf Employee Benefits says advisers should stop discussions about consultancy charging with employers altogether as there is virtually no chance of it surviving.
Herbert says: “Advisers should forget consultancy charging altogether. It is wrong that we are in this position so near to the launch of RDR, but we know the FSA aren’t going to budge on their position regarding auto-enrolment contribution levels, and we know the TCF argument would probably be applied to people paying more than the auto-enrolment minimum.
“The big question is, where this leaves all those schemes already set up on a consultancy charging basis.”
Full text of the letter from pensions minister Steve Webb to ABI director-general Otto Thoresen
Automatic Enrolment and Consultancy Charging
Ensuring individuals are automatically enrolled into appropriate schemes, which offer transparent, value for money charges, is vital for the success of the workplace pension reforms, and the reputation of the pensions industry.
I am increasing concerned about the way consultancy charges might interact with automatic enrolment. They should only be deducted from an individual’s pot where there is a tangible benefit to that individual. I have received strong representations on this issue, including a number of calls for an outright ban on consultancy charging in qualifying schemes, and the Financial Services Authority has expressed concerns about whether consultancy charging in automatic enrolment schemes will be consistent with its rules. I believe you share my concerns and I want the ABI to help.
It is vital we establish appropriate measures to ensure individuals who pay consultancy charges benefit from the advice given, and we need clear evidence to decide how such measures should work. My officials are ready to carry out an urgent review of policy and practice in this area. However, they need access to detailed information about the way business involving consultancy charges is being structured by those among your membership that offer group personal pensions. Once I am in possession of the facts, I shall be able to decide whether or not to permit consultancy charges to be levied on automatic enrolment schemes.
I look forward to working with you and your members on this important issue.
Steve Webb MP
Minister of State for Pensions