In the latest stage of its crackdown on charging scheme members, the government has announced the final details of the upcoming ban on member-borne commission in occupational pension schemes which provide money purchase benefits and which are being used as a qualifying scheme for auto-enrolment purposes.
The good news (for trustees) is that the government has decided that service providers should bear the brunt of the ban in terms of compliance, although trustees will have obligations.
Service providers will be prevented from levying a charge on members to recover the cost of any commission paid to advisers for services in any new commission arrangements from 6 April 2016 (and in existing ones that are varied or renewed after that date). There will be further consultation on extending the ban to existing arrangements later this year.
The trustees' role is in starting the process. They have to confirm to firms providing administration services to them (including integrated service providers who supply other services as well as administration) that a scheme they are managing is being used as an auto-enrolment qualifying scheme. This confirmation must be provided within three months of the latest of three dates:
- 6 April 2016;
- the scheme becomes used as an auto-enrolment qualifying scheme; or
- the service provider is appointed.
Trustees must, if asked by the providers, confirm which members are deferred, within one month of the request. The provider then has to confirm to the trustees that it has complied with its duty to stop member-borne commission and the trustees have to confirm in their scheme return whether or not the provider has given this confirmation.
Other key aspects of the ban are:
- As with the charges cap for money purchase schemes, the ban will not apply to small self-administered schemes, executive pension schemes and schemes with only one member. But unlike the cap, it covers all money purchase benefits, not just default arrangements.
- It will apply to all members (whether active or deferred) who are, or were, employed by the employer for whom the scheme is being used as an auto-enrolment qualifying scheme.
- For multi-employer schemes (whether or not sectionalised), the ban will apply only to members who are current or former employees of an employer actually using the scheme as an auto-enrolment qualifying scheme.
- A scheme which is covered by the ban will continue to be covered, even if it subsequently ceases to be used as an auto-enrolment qualifying scheme.
- The ban will start one month after the provider receives the trustees' confirmation. The provider must confirm to the trustees that it is compliant within one month of becoming subject to the ban.
- Members will be able to opt-in to paying for advice and services subject to various conditions, including that there must be a written agreement which sets out (among other things) the cost and the period over which it will be deducted from the member's funds.
Comment & Actions
- Trustee will be relieved that one consultation option – that they should be required to ensure members are not charged and use their best endeavours to eradicate any existing arrangements – was not taken up.
- Compared with the charges cap and active member discount ban, the scope of the new rules is pretty wide – covering all money purchase benefits, including AVCs under a qualifying scheme where it is used to provide money purchase benefits, even where they are the only form of money purchase benefit under the scheme, and applying to all deferreds, including those who were deferred before April 2016, or even before the scheme was first used as an auto-enrolment scheme.
- Trustees do need to make a diary note of the deadline for notifying providers – the timescale is quite short. In some cases this may mean getting confirmation from scheme employers that they are using the scheme for auto-enrolment.