One life company I spoke to this week spoke openly about ditching £millions worth of systems development within weeks of its implementation.
It’s hard to see why they ever built it.
The direction of travel has been clearly flagged by the DWP, the OFT and any number of commentators of whom I was one. At an NAPF connections debate earlier this month Dr Debbie Harrison of the FSCC predicted the DWP announcement with unnerving accuracy.
As John McCririck would have called it when the “jolly” came in – “they knew”!
So let’s look to the future. The clear marker laid down by the DWP that consultation will commence in the autumn on a charges cap is another strong hint . Will it also be ignored?
The CC ban has little retrospective impact on schemes. Few have been set up on this basis and those that have can easily be re-established without the charge .
A much bigger worry for employers and advisers is the threat of a charges cap.
The massive surge in GPP sales in 2012 (many of which have still to be implemented) were drive by the “buy now while commission lasts” line from corporate advisers. I warned at the time that this was a risky pitch.
Employers who bought the story must now worry that the impact of the commission payments on the AMC will disqualify some of these GPPs as Qualifying Workplace Schemes (QWPS). If the “plimsoll line” is set at an AMC of 0.50% (which the DWP ominously refer to as “the baseline level”), the majority of commission based schemes will at least need to “comply or explain” their charges.
Nor should they expect to be saved by the “active member discounted charge”. The continued attacks on AMD‘s suggest that it will be the pre-discounted charge (eg what deferreds pay) that will be reckoned the scheme charge.
So these should be worrying times for advisers and employers who have pre-purchased “AE ready” schemes with commission paying for the administrative middleware , implementation and employee communications.
While it is beyond the Pension Regulator’s or even the DWP’s remit to ban commission based schemes as QWPS, they can make life very awkward for employers .
The employer will have to explain to new members whose pot will be following them, why the charges on their existing pot (as well as future contributions) have just gone up.
Advisers may be called to account for their time to show the commission is being used to provide members (not the employer) with beneficial services.
So both employer and adviser will be running considerable unwanted reputational risk.
Faced with a summer of consumer activisim and an autumn of reports and consultations from Government, employers looking to certify commission based GPPs should reconsider allowing advisers to be rewarded the member’s fund.
While this will cause short-term pain, the “first cut is the cheapest”. Remaining in denial only defers and increases risk.
- Give a straight red to active member discounts (henrytapper.com)
- “Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
- Improving governance and best practice – Work and Pensions Committee (henrytapper.com)
- Heavyweight support for CDC – the Dutchmen strike back! (henrytapper.com)
- Replacing the financial salesman in the workplace. (henrytapper.com)
- So what’s new in pension reform? (henrytapper.com)