Complete commission ban floated by DWP

A complete ban on commission across all workplace pension schemes has been floated by the DWP in today’s consultation that also wants evidence of how commission may have increased AMCs.

The DWP has pointed to OFT concerns that employees may be automatically enrolled into schemes that contain built-in adviser commissions. It is also concerned that commissions create a barrier to employers switching to a better value scheme, firstly because of the costs of selecting and managing the transition to a new provider, and secondly because of adviser conflict of interest in switching from a scheme with built in commissions to one without.

The DWP says new employees may therefore be enrolled into an employer’s existing scheme and pay commission, without necessarily benefiting, even if lower charging alternatives are available. For these reasons the OFT has recommended that schemes with built-in commissions should not be used for automatic enrolment.

The consultation says: “Advisers can continue to receive commission for current and future members of schemes set up before the introduction of RDR in January 2013. There is some anecdotal evidence that there was a spike in sales of GPPs in the months leading up to the introduction of the RDR. If this spike in sales was a rush to set up schemes with commissions to be used for automatic enrolment, this would be a cause for concern.

“We are interested in receiving views on whether commission should be banned and any evidence on the potential impacts of this measure.”

The consultation asks:-

What would be the impact of a ban on commissions in qualifying schemes and does commission present a barrier to switching?

What evidence is there of an increase in sales of DC schemes  with commission in 2012?

How much (on average) has commission on these schemes increased the AMC in percentage points?