On 6 April 2016, a ban on member-borne commission arrangements in certain pension schemes came into force. Member-borne commission arrangements are where charges are imposed on members that are used to pay an adviser, or to reimburse a scheme’s service provider for payments made to an adviser, for services and/or advice provided to an employer or member. Trustees of affected schemes are required to notify their scheme’s service provider(s) that the scheme is subject to the ban, in most cases by 6 July 2016.
Scope of the ban
The ban applies to “qualifying schemes” providing money purchase benefits (other than executive pension schemes and most schemes with less than 12 members). A qualifying scheme is one which an employer is using to meet its automatic enrolment duties i.e. one:
- into which an employer is automatically enrolling jobholders; or
- which is closed to new members, but in which jobholders are active members.
The ban applies to any qualifying scheme providing money purchase benefits, including a DB qualifying scheme that provides money purchase AVCs, even if those AVCs are the only money purchase benefits provided by the scheme.
Currently, the ban only applies to member-borne commission arrangements entered into on or after 6 April 2016. Arrangements that were in place before that date will therefore be exempt from the ban unless varied or renewed on or after 6 April 2016.
A “service provider” is any person who provides an administration service directly to the scheme. Service providers are responsible for compliance with the ban, but trustees are responsible for notifying their scheme’s service providers that the scheme is subject to the ban. The service provider is not required to comply with the ban until it has received the trustee notification.
Trustee notification obligation
Trustees of qualifying schemes providing money purchase benefits must provide the required notification to their scheme’s service provider(s) within three months of the later of:
- 6 April 2016;
- the date on which the scheme became a qualifying scheme providing money purchase benefits; or
- the date on which the service provider is appointed to the scheme.
The majority of schemes are therefore required to make the notification by 6 July 2016.
The notification must be made in writing. The service provider has two months from when it receives the notification to provide written confirmation to the trustees that it is complying with the ban. From 2017, trustees will be required to confirm on their scheme return whether they have received the necessary service provider confirmation.
The Government has produced guidance for trustees and service providers on the ban.