‘What does the DWP consultation on implementing a ban on member-borne commissions mean for advisers of occupational pension schemes?’
Norton Rose Fulbright partner Lesley Harrold
In March 2014 the Government announced that it would introduce a range of measures to protect people automatically enrolled into pension schemes. It included proposals to introduce a ban on commission in all qualifying schemes used for automatic enrolment.
The ban will apply to all occupational pension schemes used as qualifying schemes for automatic enrolment with the exception of small self-administered schemes, executive pension schemes and schemes with only one member.
The DWP notes that, due to the nature of commission arrangements, designing regulations to implement the ban will be complex. In particular, trustees may be one step removed from negotiations and agreements in relation to member-borne commission payments between service providers and advisers.
Trustees will continue to be able to use member-borne charges to pay for advice that they need, or are legally required to obtain, to run the scheme effectively. The example given by the DWP is the requirement for trustees to seek professional advice when deciding on an investment strategy. However, employers will not be permitted to use member-borne charges to pay for any advice or service they obtain from an adviser. Employers can still seek advice but must bear the costs of this themselves.
Hargreaves Lansdown head of pensions policy Tom McPhail
Whether the Government intends the proposed ban on member-borne commissions to effectively operate as an RDR for the occupational world is an interesting question.
There appears to be a very clear DWP agenda to eradicate commission in any form from pension products. While this is only a consultation, it feels like there is a clear direction of travel.
But the DWP needs to be careful that what it ends up putting in place does not cause poorer outcomes for people at retirement.
On the other hand, there is a burgeoning recognition across both regulators that good outcomes are not all about costs and that communications, member engagement and quality also play a role.
Both the FCA and The Pensions Regulator are mindful of these factors. The previous FCA paper on retirement income outcomes, for example, was cautious about unintended consequences, and TPR’s paper on scheme governance talked about value for money, not cost.
Barnett Waddingham consultant Malcolm McLean
The DWP is right to consult on the most effective way to bring in regulations to prevent charges being imposed on members of occupational pension schemes used for automatic enrolment as commission payments to advisers.
We already have the RDR operating in the FCA-regulated world and logic suggests the rules should be equalised across both jurisdictions.
It is ridiculous that there even are two jurisdictions. If we go back to what Alan Pickering said all those years ago when he conducted his review: “A pension should be a pension, full stop.”
The reality is that the occupational DC world has become a soft touch for pension advisers, while the contract-based world has been largely cleaned up.
Charges are an emotive issue but the industry is doing itself no favours if it thinks it is OK to plonk the charges for consulting on the scheme onto the consumer.
We should have the same rules across both occupational and contract-based schemes. Until we do, these anomalies are going to keep on popping up.
