Business costs of auto enrolment set to rise

Last month, the Government banned consultancy charging in all automatic enrolment pension schemes. Prior to this, consultancy charging allowed financial advisers to deduct fees from the pension pots of employees to pay for automatic enrolment advice given to an employer. Now, employers who want help to set up an automatic enrolment scheme will have to pay their advisers directly.

The Department for Work and Pensions (“DWP”) has made it clear that it only expects charges to be applied to members’ pension pots if the advice given leads to a tangible benefit for the members, something very difficult to show especially when setting up a new scheme.

The DWP has also announced that it will be proposing a cap on default fund charges in a forthcoming consultation, this autumn.

The ban on consultancy charging has received a mixed reception in the pensions industry. Opponents say that the ban may be detrimental to members, as it will discourage employers from seeking advice, increasing the risk of poor decision making and incorrect implementation.

Proponents including the Pensions Minister, Steve Webb, point out that there is not going to be any decrease in members’ pots and that there has been a level of transparency introduced which will help build confidence in workplace pensions.

Automatic enrolment is technical and time consuming, therefore we recommend seeking advice. The best way for employers to handle the teething troubles of automatic enrolment is to start putting arrangements in place as soon as possible.

The ban on consultancy charging in relation to automatic enrolment schemes is yet another reason why small and medium sized employers will be looking for cost efficient methods of dealing with their automatic enrolment duties.