Advisers should avoid recommending life companies to provide auto-enrolment pension schemes for small and medium-sized employers, according to one IFA who offers outspoken criticism of the minimum contribution limits being set across the sector.
Paul Davis, and IFA at Billericay-based Clear Financial Advice, told FTAdviser that he has already set up several companies with auto-enrolment complaint pension schemes through master trusts such as Now: Pensions or The People’s Pension, charging a flat fee of £1,500.
He said: “To set up the scheme is pretty straightforward, if you do it via those two then there’s no further administration needed via the IFA because it’s completely powered by the payroll system and the provider, automatically looking after itself.
“There’s no need for ongoing service either, unless the employer wants to offer an annual surgery for their staff with an adviser.”
Insurance company pension providers have reacted to this year’s wave of SME employer staging dates by setting minimum requirements for their services, in the wake of a charge cap set by the government that they claim made administering schemes to some firms economically unviable.
Aegon set a minimum average contribution limit of £100 a month per member for existing schemes and £150 a month for new schemes; Standard Life requires a minimum of five members at £25 per month initially, rising to £100 from 2018; Royal London has an £83 minimum average monthly contribution limit for new schemes.
Several firms, including Standard Life, Aegon and Aviva had said in addition to these minimums, they would require smaller schemes to pay further management fees of, for example, £100 a month.
Legal & General operates a different model, introducing a flat £1,000 set-up charge for schemes with fewer than 500 members.
B&CE, which runs The People’s Pension, and Danish-backed Now: Pensions, do not impose minimum requirements and will accept schemes of any size. The same is true of government-backed Nest, which has previously said it is for this reason it charges both ongoing fees and an initial contribution fee.
Mr Davis stated: “Insurance companies are now setting the minimum requirements to offer auto-enrolment for any kind of employer, which basically kicks out most small to medium businesses, who are going to start paying some serious contributions.
“There’s too many IFAs out there trying to prove their worth, suggesting an all singing all dancing pension scheme when actually the people their dealing with don’t give two hoots.
“My perspective is that the most important thing is the employer meeting all the Pensions Regulator’s requirements to prevent any enforcement letters.”
“The insurance companies have already put their hands up and said they’re struggling with the administration at the moment and its only going to get worse, so why would you want to go down that route.”
