The issue of whether consultancy charging can reduce contributions below auto-enrolment minimums has been “sent up to the DWP,” for clarification, Darran Burton, TPR manager of DC regulation, told delegates at the Corporate Adviser Summit.
Describing it as a “red hot burning issue,” Burton said although the FSA had sanctioned consultancy charging, its effect on contribution levels was up to TPR. The issue was whether it was right to deduct a consultancy charge that takes the member’s auto enrolment contribution below the minimum.
“In the next two months, there will be some clarity on this, “ he said.
Nigel Stanley, TUC head of campaigns and communications, said it was wrong to expect staff to pay for auto enrolment advice given to employers, drawing the analogy that workers would not be expected to pay for health and safety advice provided to employers.
Marta Phillips, chief executive of the Pensions Advisory Service said consultancy charges penalised deferred members as they would be paying for extras, such as workplace presentations, from which they would no longer benefit, if they left their employer.
“If consultancy charges are for extra ongoing services, they should stop when the member leaves,” she said. Otherwise, consultancy charges would act like an early leaver penalty.
Jamie Jenkins, Standard Life head of workplace strategy, said it was up to advisers to demonstrate the value of their advice to employers, adding that the FSA’s position on consultancy charging was “not set in stone.”
Stanley said members wanted to know that providers were on their side and that schemes were being run in their interests, but employers were often more interested in whether the auto enrolment scheme would suit their payroll systems, than whether it offered value for money for the workforce.
Phillips was concerned that SME employers were often as ignorant about pensions as their employeess and often did not understand the schemes being sold to them. “SMEs have less room to manoeuvre on fees and charges. There is a big challenge for SMEs to get a good deal, “ she said, although downward pressure on costs should not be at the expense of good administration.
She cited the case of a deferred member who had complained to TPAS about her entire £2,000 fund being wiped out by charges. “The problem with hidden charges is that members aren’t going to discover them until 15 to 20 years later,” she said.
Jenkins disputed the wisdom of having around 15 super trusts for auto enrolment, saying he was not sure this was better than having an independent adviser for each scheme.