The new year will witness a sea-change in the distribution of defined contribution (DC) auto-enrolment pension schemes. The government, backed by the Labour party, will introduce a cap (probably 1%) on member charges for all auto-enrolment schemes, driving medium-sized employers to go directly to a multi-employer trust-based scheme with low member charges.
This trend will be exacerbated by the continuation of the ban on consultancy charges for schemes that pay the minimum 8% contribution. The rise of the large-scale, trust-based scheme with built-in investment governance arguably reduces the need for pensions intermediaries. It is likely, therefore, that several more major consultancies, with business models predicated on a fee income from DC investment governance services, will enter the market as providers.
This is likely to trigger a regulatory investigation into the dual role of a firm that is both an independent intermediary and a scheme ‘manufacturer’. The investigation might also examine the consultancies that sell fiduciary management services to their own clients without an open tender. At present, consultancies’ advice to employers is not regulated; this might change.
Finally, we should expect a legal challenge from [the national employment savings trust] Nest and/or its supporters, probably at European level, to remove the cap on contributions and ban on transfers.
Doctor Debbie Harrison is senior visiting fellow at The Pensions Institute at Cass Business School
