OFT commission ban survival warning for advisers

Swathes of corporate IFAs will struggle to survive if commission on group pensions is removed warns Capita Employee Benefits.

Responding to the OFT’s report into workplace pensions, Capita Employee Benefits director of business operations Jonathan Phillips says smaller corporate IFAs could go to the wall just when they would otherwise be supporting SMEs through the auto-enrolment process.

Phillips says: “Commission has always played an important part in the SME market. As noted by the OFT, employers are “keen to minimise the cost of AE” and commission, applied within a responsible charging structure, can help to do this. It can also pay for employee services that enhance the understanding of often complex pension arrangements and encourage individuals to contribute more to their long term saving.

The withdrawal of commission will only have a very limited impact on large employee benefit consultants, such as Capita Employee Benefits, but swathes of corporate IFAs may struggle to survive with its removal. These are the very firms who would otherwise be supporting the SME market through auto-enrolment and beyond. It would be ironic if a well intended reform such as the blanket removal of commission had an adverse effect on the success of auto-enrolment in the small to mid-market and impeded employee recognition of the importance of saving for retirement.

In terms of active member discount, a number of our corporate clients using this charging structure may be disappointed at having to implement additional change to their DC schemes at an already busy time with auto-enrolment. There will also be some disappointment that they can no longer discount pension charges for their existing employees.

Whichever way the DWP acts, we hope that employers are given sufficient time to manage the changes that they may need to make.”

Legal & General pensions strategy director Adrian Boulding says: “We support the need to end the practice of higher charges for members who have stopped contributing, the so called deferred members, to subsidise charges for other members.

We have long been advocates of value for money pensions for the workplace and have avoided opaque charging structures such as active member discounts, consultancy charging fees and commission.”