Lighthouse Group Employee Benefits managing director Roger Sanders has seen some SME employers being quoted in excess of £60,000 to overhaul legacy schemes, including schemes very recently adapted for auto-enrolment, to comply with the charge cap where providers have turned off commission.
For some of these schemes especially if they already had tight costs, partly achieved through an AMD, the 75bps cap is proving difficult to deliver without extra costs for the employer, whether from the adviser or the provider.
Syndaxi Financial Planning director Robert Reid is calling for an amnesty to allow employers in this situation to be allowed to switch members’ assets to a lower charging scheme with a scaled back regulatory process.
Sanders says: “We have seen employers coming to us now saying ‘Can you help us?’ It hinges on the 75bps and that is the trigger where it means the employer must pay something on top. Previously it was painless for employers.
“In a recent case, an employer had 400 to 500 employees in a GPP, and had to stage all staff – so around 850. They had low opt outs – 750 out of 850, and were paying the minimum. This was all done through a national IFA. But that adviser has written to say ‘commission is stopping on this scheme in April 2015, which was year early, so we can no longer service your scheme, with all that entails – including the middle ware – without a fee. And the fee is £60,000 a year plus VAT’.
“We know the firm as we also pitched for it originally. We have now said come back to us, but the FD is between a rock and hard place. We have said we will do it more cheaply, but you will still be looking at a fee of around £30,000.”
Saunders says: “Employers like that feel very hard done by, with an industry that has allowed them to use existing products and a Government that said we are going to make better member outcomes by reducing the cost. The employer has now got a major cost – equivalent to as much as two full time members of staff. It could put a break on their recruitment because of these extra costs. I have got a lot of sympathy with them. If we had started fresh in 2012, we could have managed expectations, but collectively as an industry we have not managed expectations.
“We are managing expectations now – that’s for sure. For smaller employers the costs are more manageable. But larger employers are feeling slightly misled and I don’t know if they are pointing the finger at the DWP, the providers, or at the intermediaries.”
Reid says: “The easy part is finding the better deal. The hard bit is moving it across. The easiest route for the employer is to shut the scheme down and then start another one, but employers typically want to move everything across to the new scheme and that is where it starts to get complicated. We need an amnesty where people in this situation are allowed to move scheme members across without having to bother with all the expensive paperwork.”