The Department for Work and Pensions is seeking views from advisers about how best to operate the ban on member-borne commission and consultancy charging in workplace pension schemes with the sunset clause on all such payments coming into force next April.
The government is suggesting placing a responsibility on trustees or providers. At the same time, it says that it does not want to discourage employees who want to access and pay for individual advice through their plan from doing so, while it doesn’t believe a tick box arrangement would be appropriate.
The consultation follows the government’s announcement in March 2014 that it intended to prohibit all commission payments to advisers in money purchase and auto-enrolment qualifying schemes from April 2016.
Following the Retail Distribution Review, the Office of Fair Trading undertook a market study into defined contribution workplace pension schemes, publishing their findings in September 2013.
These included a recommendation that schemes with in-built commission should not be used for automatic enrolment, due to concerns that members could pay commission without realising and that commission presented a barrier to switching providers or schemes, since advisers would lose the commission stream if they advised an employer to switch in the future.
The Financial Conduct Authority consulted on rules to ban commission that was not prohibited by the RDR in October 2014 and banned consultancy charges in these schemes from April, with existing commission to be banned from April next year.
The government now wants to find out the most effective means of regulating to ban commission and consultancy charging in relevant occupational pension schemes used for automatic enrolment.
The regulations will sit alongside corresponding FCA rules and help to ensure that members are not enrolled into workplace pension schemes used for automatic enrolment where the members are charged for commission payments to advisers.
The consultation suggests two main options:
• Option A - placing a duty on trustees to ensure that members are not charged for the cost of any commission payments to advisers in relation to any new commission arrangements; and to use their best endeavors to remove any such existing member-borne commission arrangements in these schemes; or
• Option B - placing a duty on service providers to prevent members being charged for the cost of commission payments to advisers in relation to any new commission arrangements; and to remove any existing member borne commission arrangements in these schemes.
Under these options, the commission ban will apply to any current employee of a given employer who has at least one employee using that scheme as a qualifying scheme for automatic enrolment; and any former employees of that employer who made a contribution to that scheme before the date the ban comes into effect.
The consultation paper read: “We do not want the commission ban to prevent members from expressly choosing to access or pay for advice if they wish to do so. This is consistent with the approach taken by the charge cap and FCA rules banning commission in qualifying workplace personal pension schemes.”
Members will have to make an active choice and advisers will not be able to use a “tick box format” for members to opt-in or out of advice or services.
The DWP stated that it believes members should have the opportunity to opt-in to adviser services and welcomed views on how this should be paid for. “For example, should payment be made via a fixed fee against the members’ funds or contributions, or should it also include the facility to recover the fee by way of a percentage charge against the members’ funds or contributions,” the paper asked.
In terms of further areas for consultation, the document noted that none of the options will place a legal duty or requirement on advisers.
“Nonetheless, the government is interested to understand the level and scale of the impact on advisers from the options presented in this consultation, with particular regard to the ban on existing member-borne commission arrangements in occupational schemes used for automatic enrolment.”
This consultation closes at 27 November.
peter.walker@ft.com
