Providers wade into row over Aegon GPP cashback offer

Aegon’s offer of a payment to employers equal to half their first three months’ auto-enrolment contributions has been attacked as being at odds with the principles of the RDR and potentially breaching regulations and HMRC tax rules.

Earlier this month the provider launched an offer to pay employers half their first three months contributions if they place their auto-enrolment scheme on its new Aegon Retirement Choices platform.

Aegon says the payment, which is paid six months after their staging date, is designed to compensate employers for the costs involved in dealing with auto-enrolment.

But critics have slammed the strategy as sitting squarely at odds with the principles of the RDR.

Aegon counters that the payment is not a rebate, and the fact it is paid six months later, to the employer, demonstrates it is not paying the adviser’s fees on the employer’s behalf.

An unnamed source has also suggested to Corporate Adviser that the strategy falls foul of FSA guidance set out in a 2005 leaflet – Promoting Pensions to Employees – which says ‘you must not be paid commission or receive some equivalent financial reward – such as a reduction in motor fleet insurance premiums – if your employees join your pension scheme’.

Steven Cameron, head of regulatory strategy at Aegon says this FSA guidance was issued to clarify to employers those situations where it was acceptable to discuss the pension scheme they offer with employees, and not to deal with helping advisers meet their compliance costs. He argues the employer will not profit from the scheme, and points out it is the adviser who will be promoting the scheme.

John Lawson, head of pensions policy at Standard Life says the reimbursement could also raise a 55 per cent tax charge if it is capable of being recouped by Aegon in the event that the scheme switches shortly afterwards, as the Revenue would see the payment as being linked to the pension contribution.

Cameron says he cannot see employers going through the rigmarole and cost of auto-enrolling their staff into a scheme only to switch it six months later.

Tom McPhail, head of pensions research at Hargreaves Lansdown says: “This looks highly questionable. There is a degree of sleight of hand involved in taking what will ultimately be in people’s pension pots. Aegon may say there is no differential pricing between schemes that take it and those that do not, and that the money is being paid out of their capital. But ultimately everything comes from members’ funds.

“It runs contrary to the general principle that money goes from the employer and the employee to the provider. We have seen deals in the past where the intermediary has taken commission and then paid some of it back to the employer as a kick-back to secure the business.

“And if this is used for schemes in the staging process, then the amounts will not be very big. So this makes it more suitable to rebroking existing schemes where contributions will be higher.”

Ewan Smith, managing director of Scottish Life says: “I’d be very surprised if FSA and TPR were happy with this approach. There seems to be a serious conflict of interest for the employer.  And there must be a suspicion of the provider influencing the remuneration arrangements between the adviser and the employer, which is completely contrary to RDR principles.”

Lawson says: “55 per cent tax applies to cashbacks when the provider has the right to claw that back”.

“If Aegon is giving away free money with no strings attached, advisers may want to consider the opportunity to game that situation for small schemes’ benefit.”

Cameron says: “What we’re offering employers is very different from the FSA’s concept of ‘rebates’. The FSA is looking to ban fund managers or product providers from keeping charges unnecessarily high and then systematically rebating product charges either to the platform service provider or in cash into platform cash accounts. Their reason is to avoid charges being hidden or to circumvent RDR rules. In particular, they are concerned that payments in cash into the client’s cash account could be used to cover AC – and that advisers could make it look as if the advice is free or being paid for by the fund manager.

“What we’re doing is very different. It’s a reimbursement to the employer for the time and effort they’ve put into embracing their pensions reform duties – through our workplace platform.”