Personal PensionMay 10 2013

Gov’t ban to end consultancy charging ‘scandal’

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Pensions expert Ros Altmann has proclaimed a move by the government to tackle what she termed the “scandal” of consultancy charges, as pensions minister Steve Webb announced consultancy charges will be banned for all auto-enrolment pension schemes.

The move will mean consultancy charges, which were an attempt to apply the Retail Distribution Review commission ban to the sector by allowing advisers to take an agreed fee directly from the pension scheme, will be banned on all “occupational and personal pension schemes”.

In a written ministerial statement, Mr Webb said a government review had concluded the charging mechanism “is not appropriate” and that proposals for a ban will be put before parliament “as soon as possible”.

He added that the government intends to consult in the autumn on plans to cap the charges for pensions advice.

Pensions policy expert Dr Ros Altmann said: “What is happening is that unregulated, unqualified advisers who are basically selling pension schemes for employers to use for their auto-enrolment are being paid by workers out of their pension funds.

“These kinds of advisers wouldn’t be allowed to advise the workers themselves, but the government permitted workers’ pension contributions to be used to pay these salesmen who sold the scheme to the employers to use in auto-enrolment.

“This kind of selling practice will give any adviser a bad name.”

Pensions minister Steve Webb said in a ministerial statement: “It is vital that the pension savings of individuals who are automatically enrolled are protected. Following a thorough review, I have concluded that the consultancy charging mechanism is not appropriate in schemes used to comply with the employer duties under the Pensions Act 2008.

“I am therefore also announcing the government’s intention to ban consultancy charges in automatic enrolment schemes.”

Last year, Scottish Life business development manager Jamie Clark told FTAdviser that restrictions on consultancy charging could “disenfranchise” employers that are “unable or unwilling” to pay a direct fee for advice.

He said: “[The National Employment Savings Trust] could come under pressure, as they see a much greater than expected increase in direct enquiries from employers who are unwilling or unable to pay a specific fee for advice and AE support services from financial advisers.”