The FSA’s insistence that consultancy charges may not take contributions below auto-enrolment minimums will make the practice unworkable for fund-based charges, meaning more employers will miss their duty dates warns Standard Life.
The FSA is understood to be sticking to its position, revealed in a newsletter in June, that consultancy charges are not permitted where they reduce contributions below auto-enrolment levels.
But Standard Life head of pensions policy John Lawson says the regulator’s position kills auto-enrolment stone dead for all shapes of consultancy charge except for a percentage of contributions model, and even then only where an employer agrees to pay more than the auto-enrolment minimum. Lawson says even a fund-based consultancy charge of 10 basis points could add up to a bigger figure than an employee’s annual contribution where the individual has a very large pot, for example where a fund has been transferred in from another scheme. He adds that there is no way providers or advisers will be able to know whether a fund-based charge reduces a contribution below the level required by auto-enrolment regulations.
Lawson predicts the FSA’s position on consultancy charging means a significant proportion of GPP business currently done on a commission basis will be driven to Nest because employers will refuse to pay a fee.
Lawson says: “The FSA’s position on this has effectively killed off consultancy charging on anything other than a percentage of contributions basis.
“The FSA does not have the power to monitor employer’s contribution levels. Only TPR does. Yet TPR ought to want as many advisers to be involved in auto-enrolment as possible so they can help employers get over the line by their due date.”