Aviva has pledged to continue paying legacy trail income to advisers related to occupational pension scheme business until it is effectively ended with a ban on legacy commission on platforms in April 2016, as it announced its plans following the pension scheme charge cap.
The insurer said it will stop paying initial commission on by the end of 2014, but will continue paying trail until this is “banned in April 2016”.
Under Financial Conduct Authority rules that come into force last month, payments from product providers to platforms that often included adviser commission had to stop for new retail business. Ongoing payments - and cash rebates generally - can continue until April 2016.
Although this does not amount to a ban on legacy commission some have said it effectively means to the same thing, while others seem to conflate the move with a sunset clause on trail that has not yet been introduced.
The Financial Conduct Authority has come under pressure from across the adviser sector to clarify its position on legacy commission, after a Panacea Adviser poll found widespread confusion among intermediaries.
Last summer minutes from an FCA board meeting confirmed it was looking at introducing a formal end date for all legacy trail amid concern that ‘anti-churn’ could cause consumer detriment.
Aviva also said it stopped paying consultancy charges taken from a pension scheme in June 2013, one month after the government announced its intention to put a stop to this method of paying for advice.
The statements mark the firm’s response to a government cap of 0.75 per cent on occupational pension scheme charges, which was introduced earlier this year and comes into force in April 2015.
As part of its plans, Aviva has become the second firm to confirm it will hit “a small number of schemes” run by smaller companies with a charge to cover the shortfall in remuneration from schemes with comparatively few members.
In April Standard Life announced it will introduce a ‘scheme management fee’ of £100 per month for smaller employers with modest contributions who have previously agreed terms with the provider that are above the 0.75 per cent scheme charge cap.
Aviva claimed it is the first provider to come out with a fully comprehensive response to the changes, as it also confirmed it was removing active member discounts by the end of 2014 and equalising prices for leavers.
On Friday, Aegon revealed in its annual results that it expects the charge cap to result in costs of £20m-£25m a year. This could be a substantial proportion of annual revenue, given that its profit in the first quarter of 2014 was £22m. Aegon implemented the cap in August last year.
Earlier this month, Lloyds Banking Group revealed in its annual results that Scottish Widows had set aside £100m in the first quarter to cover the hit wrought by the changes. The insurer had implemented the changes to cap charges last April, a year ahead of the government deadline.
The government introduced its charge cap in March, against a backdrop of hostility from the pensions industry and warnings of unintended consequences from commentators.
Initially it covers only initial and ongoing administration expenses, with all trading costs sitting outside of the cap. The government has said it will re-examine the level of the cap and consider whether some or all transaction costs should be included within it in 2017.