The Department for Work & Pensions has released a second consultation on options for banning member-borne commission payments in occupational schemes used for auto-enrolment.
The new regulations will sit alongside corresponding FCA rules and help to ensure employees are not enrolled into workplace pension schemes used for auto-enrolment where the members are charged for commission payments to advisers.
Two options to axing commission payments have been proposed:
Option A places 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 efforts” to remove any such existing member-borne commission arrangements.
Option B places 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.
Jamie Jenkins, head of pensions strategy at Standard Life, explained that this consultation sought to bring trust-based schemes in line with their contract-based counterparts in banning commission where the scheme was being used for auto-enrolment.
He said: “Enforcing the rules is slightly more difficult due to the additional role of trustees, who are not usually party to the contract with the adviser.
“In practice, however, there were few trust-based schemes set up to pay commission, and we would expect all providers were preparing to remove it anyway.”
Steven Cameron, regulatory strategy director at Aegon UK, agreed it was right for trustees to be given responsibility for notifying the provider if the arrangement they were administering was linked to a scheme being used for auto-enrolment.
He said: “It is also right that providers then take responsibility for bringing the scheme into line with the commission ban. In most cases, the key driver for change is complying with the charge cap, which in most cases would have required commission to be removed in any case.”