Confusion over charges for pension advice

Late in 2012, a debate around consultancy charges threatened to complicate some employers’ plans to pay providers and advisers for auto-enrolment advice.

It came just weeks before the retail distribution review (RDR), which scraps commission on many financial products, came into effect on 31 December.

On 26 November, pensions minister Steve Webb wrote to Otto Thoresen, chair of the Association of British Insurers (ABI), saying his department was to carry out a policy review that could lead to a ban on consultancy charges.

This could affect employers’ plans to comply with RDR and auto-enrolment.

Mel Duffield (pictured), head of research and strategic policy at the National Association of Pensions Funds (NAPF), said: “Providers and advisers have been grappling with RDR and have worked out their charging structures. Intervention from the minister created a distraction.

“Now they are not sure where he is going on this issue, so it will create some uncertainty.”

Rachel Vahey, an independent pensions consultant, said: “One of RDR’s main aims is to ban commission. Instead, advice can be paid for by a reduction in the member’s pension pot.

“That works cleanly for individual pensions, but with a group pension, the member’s pot may be reduced for advice he or she hasn’t directly received. The government is considering allowing consultancy charging only if the employee receives sufficient benefit from the advice the employer receives.

Sign up to our newsletters

Receive news and guidance on a range of HR issues direct to your inbox

This field is for validation purposes and should be left unchanged.

“I can see this turning into a minefield as the pension industry grapples with what ‘sufficient benefit’ is.”

The NAPF’s Duffield added: “Depending on an employer’s membership profile and how much the charges are, it could lead to quite high costs in the early stages of their being auto-enrolled.”