The government has today announced its intention to ban the consultancy charging system for automatic enrolment schemes and will also set out proposals for the introduction of a cap on pension charges in general.

The impact of consultancy charges on auto-enrolled workers pension pots has been an issue of significant concern over the last year with the government announcing an urgent review of the system in November. Industry figures argued that consultancy charges were having a detrimental impact on the pension savings within an individual’s pot, as money was being extracted out of these to pay for the advice rather than being paid by the employer. The change proposed by the government today will apply to both occupational and personal pension schemes.

In a written ministerial statement Webb said: “It is vital that the pension savings of individuals who are automatically enrolled or protected. Following a thorough review, I have concluded that the consultancy charging mechanism is not appropriate in schemes used to comply with the employer duties under the Pension Act 2008.I intend to lay the regulations before parliament as soon as possible.”

NOW: Pensions CEO Morten Nilsson commented: “Building consumer confidence in auto-enrolment is essential to its long term success. Over time, consultancy charges can significantly reduce the value of members’ pension pots and these opaque charging structures help to stoke the fires of mistrust.

“The most important outcome of auto-enrolment is that members receive value for money to ensure they are in the best possible position to build up a substantial pot of money to live off comfortably in retirement. Today’s announcement will go some way to helping them achieve this goal.”

Chase de Vere has also supported the plans to ban consultancy charging. Corporate advice manager Jon Dixon stated: “We don’t believe that allowing consultancy charging, which takes money from employees’ pensions to pay for advice given to employers, is the right way to provide the necessary support to those workers. While we understand that some employers, particularly in the SME sector, will have challenges meeting the expense of implementation and compliance, putting this cost burden on employees isn’t the right solutions. We believe that the pensions and corporate advice industry must come up with solutions which are cost effective for employers and beneficial to employees.”

ABI director of life, savings and protection Steve Gay: “The government’s decision to ban consultancy charging in automatic enrolment schemes creates a different risk to the success of pension reform in that it will reduce the availability to employers of advice and support to ensure they make the right pensions decision for their employees. We need to discuss how that risk can be mitigated.

"Pensions charges generally have fallen dramatically over the past decade and the average charge on new automatic enrolment schemes is currently at 0.52%. The industry charges agreement announced in January will ensure that pension charges and costs to employees are disclosed in a consistent and transparent way. The industry will continue to engage with the government ahead of the proposed consultation.”

Share Story: