The Government has consulted on how it should achieve a ban on member-borne commission payments in occupational pension schemes providing money purchase benefits (including money purchase AVCs) that are used to satisfy an employer's auto-enrolment duties. "Commission" refers to an arrangement whereby a financial adviser is remunerated by a service provider who imposes an administration charge on scheme members to recover the cost.
The Government recognises that the nature of such arrangements may mean that trustees are not necessarily aware whether commission is being paid. It is therefore consulting on whether responsibility for compliance with the ban should rest with a scheme's trustees or with its service providers. If responsibility is imposed on the trustees, they will be required to ensure that any new contractual arrangement they enter into after introduction of the ban is (subject to limited exceptions) free of member-borne commission charges. They will also be required to use their "best endeavours" to ensure that arrangements entered into before the ban takes effect do not contain prohibited member-borne charges.
The consultation acknowledges that trustees will not necessarily be aware of commission arrangements relating to their scheme, and so will firstly have to contact their service provider to ascertain this. If member-borne commission is present, trustees will be required to seek to negotiate its removal/move to a different arrangement unless existing contract terms mean it would not be value for money to do so, in which case trustees will be required to report to the Pensions Regulator, outlining the steps undertaken to try to remove member-borne commission.
It is intended that the ban on new member-borne commission arrangements will take effect from 6 April 2016 and that the ban on arrangements entered into before that date will take effect later in 2016. The Government does not currently intend to prevent service providers from using member-borne charges to recoup initial commission that they have already paid before the ban comes into effect. Nor will the ban apply to advice or services provided by an adviser to trustees so as to allow trustees to continue to use member-borne charges to pay for advice that they need or are required under law to obtain to run their schemes effectively
Where an employer is using a scheme to satisfy its obligations under auto-enrolment legislation in respect of any of its employees, it is intended that the commission ban will apply to all of the employer's current and former employees who are scheme members, regardless of whether their membership stems from auto-enrolment.
Many key points relating to the detail of the commission ban have yet to be decided, so it would probably be premature for trustees to start re-negotiating existing arrangements at this stage. However, trustees should take steps to understand whether any existing or proposed arrangements involve member-borne commission which is likely to fall foul of the ban once in force.