A drop in pension charges presents an opportunity

This is according to IFA Daniel Elkington, who joins a long list of financial planners who say the fall in charges for workplace schemes allows advisers to negotiate great deals and discounts.

The drop comes after the government introduced a charge cap of 0.75 per cent of funds under management, or an equivalent combination charge, in respect of the default arrangements of workplace pension schemes used for auto-enrolment from April 2015.

This means many larger providers are offering to manage workplace schemes at much lower cost, and this is presenting opportunities for advisers to help small business clients.

Elkington, IFA at Lincolnshire-based Keep It Easy, says: “I think it’s a great opportunity to contact businesses and offer to negotiate discounts. Most schemes were set up when the company and the pension’s associated value was a lot smaller. So, the increased size of the scheme should put a lot of advisers in a position to negotiate much better fees.

"The downside of this is that it might require a lot of work to move to a less costly provider if the current provider keeps collapsing the ruck, which involves a lot of fees and time due to having to do the necessary pensions surgeries.

“Workplace pensions don’t tend to cost the employer – if they are then they should be having serious words with whoever arranged it in the first place.

"People’s Pension, NOW and Nest provide pretty decent master trust arrangements for smaller employers so costs really shouldn’t be an issue.”

A downward trend

A similar sentiment is echoed by Kusal Ariyawansa, chartered financial planner at Manchester-based Appleton Gerrard Private Wealth Management. “We continue to see a downward trend in such fees, be it is at scheme or fund level. Technology has played a major role, allowing advisers to add another layer of servicing for corporate clients and their employees.

"A more hands-on approach can be taken both in terms of advising and managing individual pots in line with goals, targets and investment preferences. Advisers should be able to showcase and justify their value above costlier options such as Nest,” he says.

Scott Gallacher, chartered financial planner and director at Leicester-based Rowley Turton, says the rising cost of living means that advisers face an increased challenge in tapping into the sector. 

He says: “I understand that charges have fallen somewhat since auto-enrolment was introduced, and, given that schemes will now be larger, with accumulated funds, there may be an opportunity for employers, and advisers, to revisit the scheme selection.

"And, of course, this will be a potential opportunity for advisers. However, given the many other challenges employers will face – such as labour shortages, rising energy costs and a recession – convincing them to spend more on reviewing the company’s pension arrangements may be challenging.”

Extra service, extra costs

However, advisers who are successful will need to urge clients to realise that some providers will charge extra for additional services and governance. But is this worth the extra costs for the client?

According to Gallacher it can be. He adds: “Generally, I’d say yes. Complying with all the rules can be tricky unless you’ve got a dedicated payroll team looking after your pension scheme. Consequently, any help you can get from the provider, even if you have to pay for it, should be a good idea.”

However, Elkington, disagrees with clients paying more for additional services. He says: “Simply put, no. I think the smallest scheme I’ve arranged was for a 20-person business with Royal London.

"There were no additional provider costs for the employer and they even allowed me to design a bespoke lifestyle strategy constructed of sustainable and ethical funds – which was important for the employer due to the nature of the business.”

However, Ariyawansa takes a more nuanced approach. He says: “Advisers are able to decide whether it makes sense for the employer to pay for additional services schemes may offer.

"This is not so important for the most simple of arrangements, yet can be invaluable for high-growth companies with employees on larger wages or benefits.”

There is no doubt that value for money is a key consideration for IFA clients looking to set up a work place pension.

Although using an adviser can add to the overall cost of a pension, PensionBee chief executive officer Romi Savova argues that it can be worth it. She says: “Value for money should be assessed according to the framework laid out by the regulators, including performance, costs and service levels.

"While an advised offering can add to the overall cost of a pension, if it helps a customer achieve their desired outcome in retirement, for example through efficient contribution management or tax optimisation, then it can be worthwhile.

"Similarly, a low-cost product may not perform well owing to insufficient levels of diversification, which should be considered holistically with the customer’s objectives in mind.”

Aamina Zafar is a freelance journalist