Personal PensionMay 14 2013

Timing of consultancy charging ban ‘beyond belief’

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ByAimee Steen

A major pension provider has attacked the ban on consultancy charging on auto-enrolment, saying it could result in a potential failure if employers do not have access to advice during the process.

Ewan Smith, managing director of Scottish Life, said the auto-enrolment process is complicated and requires a lot of work, but no one will do it for free.

“All that momentum that we thought could have led to a healthier market could be blocked now,” he said. “There is a massive risk to both the delivery of RDR and also the delivery of auto-enrolment as a policy objective.”

Steve Webb, the pensions minister, wrote in a parliamentary statement on 10 May 2013 that the government intends to ban consultancy charges in auto-enrolment schemes.

Scottish Life, which announced an intermediary-focused proposition for auto-enrolment last year, said it must now rethink its strategy but will not abandon the group advised market.

Mr Smith said his firm had been left with a “material business issue” following the decision. Systems will have to be adjusted and sales literature amended, he added.

“That can be done but the pain is in the fact that we have invested millions of pounds in these new systems,” he said.

Mr Smith said although he understands the arguments for not allowing consultancy charging, and supports individuals getting the best outcome, banning consultancy charges will ultimately be detrimental to employers and employees.

“I know it is like crying over spilt milk but how can you develop a long-term pensions policy and then, six months into the new world, the pensions minister makes up his mind about a really fundamental issue?” said Ewan Smith, managing director of Scottish Life. “It is almost beyond belief.”

He added that a transition to ‘new world’ charging, where advisers would revisit existing pension schemes with clients to identify a more appropriate choice, would now not happen as it would be difficult to migrate clients onto a new charging structure. “Those existing commission-based arrangements will probably stay in place now,” Mr Smith said.

Despite the government’s view on consultancy charging, Mr Smith reaffirmed Scottish Life’s support for the adviser market.

“We are not going to walk away from our commitment to an intermediated group market. We will be there to support advisers’ engagement with employers,” he said.