Advisers are failing to get their views across to politicians because the advisory community is fractured, Stephen Gay, ABI director of life, savings and protection, told delegates at the Corporate Adviser summit, writes Pam Atherton.
This lobbying window exists despite the huge opportunity afforded by auto enrolment and the cultural shift in attitudes which meant that people now want to talk about pensions, he said, responding to criticisms from advisers about the way remuneration structures such as consultancy charging and now possibly active member discounts and even historic commission schemes were being unravelled retrospectively with apparently little regard for the firms who used them in good faith.
Gay said: “People are waking up and smelling the coffee. Auto enrolment is bringing in a paradigm shift. The pensions industry needs to be much more agile in how it operates. It has gone from being a retail market to a workplace market providing social solutions.
“The OFT report implies acceptance that charges that were previously considered acceptable will now be judged by contemporary standards.”
He said the ABI was raising standards by announcing its five pillars for savings and tax incentivisation, had agreed a way of disclosing charges with 13 of its members so that employers could better understand their pensions costs and member companies were publishing their annuity rates.
Gay said the OFT report was “fair but challenging” and should be ‘required reading’ for anyone in a leadership role in the pensions industry. It showed that parts of the market were not working, that the demand side was weak and that the industry needed independent governance to ensure members were getting a good deal.
He said charges were coming down with the average AMC on a new auto enrolment schemes being 0.52 per cent and on legacy schemes 0.77 per cent, although some legacy schemes from the 1990s were still charging over 1 per cent, meaning that thousands of trust-based schemes were at risk of providing poor value for money. The OFT had stated that such schemes should not be used for auto enrolment.
Gay added: “ABI members will conduct an audit to examine legacy schemes for charges and guarantees to check if they are value for money. The DWP will ban AMDs and consider a charging cap this autumn, while Steve Webb is taking a strong stand on consultancy charging,” he said.
Steve Herbert of Jelf Employee Benefits, slammed the timing of the OFT report as “crap” for publishing its findings just before millions of SME workers are due to be auto enrolled.
Herbert said: “The message that consumers have got is that Nest is a high charging scheme, when it isn’t. The Government also needs to get rid of the alphabet soup of acronyms like TPA and DWP.”
Another delegate asked whether ABI members would pass commission back to members if it is banned retrospectively. Gay, said he could not answer the question “because the operational implications of taking commission out of legacy schemes is very challenging.”
Andrew Warwick Thompson of TPR said it was not on the DWP’s agenda to ask whether insurers were boosting their balance sheets at members’ expense. He said he wanted to get away from the view that a GPP is a retail product and that if advisers or trustees wanted to change a scheme and move all the members into a master trust, they should not have to worry about it.