«Better workplace pensions: Banning member-borne commission in occupational pension schemes Government response and consultation on draft regulations ...»
Government response and consultation on draft
About this consultation
How we consult
Chapter 1 – Commission
Chapter 2 – Scope of the regulations
Chapter 3 – Preventing and removing commission
Options for preventing member-borne commission payments to advisers............ 19 Service provider
When will the ban take effect
Impact of our regulations on the market
Chapter 4 – Compliance and enforcement
Annex A – Consultation questions
Annex B – Draft regulations
Annex C – Summary of draft regulations
Annex D – List of respondents
Annex E – Glossary
Introduction This paper forms the Government’s response to the consultation ‘Better workplace pensions: Banning member-borne commission in occupational pension schemes’.
This paper also consults on draft regulations that the Government intends to bring forward to deliver the ban (see Annex B). We would welcome views on whether these draft regulations meet the policy decisions set out in this paper.
About this consultation Who this consultation is aimed at We would particularly welcome responses from providers and members of occupational pension schemes including third-party administrators, independent financial advisers and adviser firms, trustees and managers of schemes, lawyers, and interested members of the public.
Purpose of the consultation The purpose of this consultation is to seek views on whether the draft regulations deliver the policy decisions made by the Government following the consultation ‘Better workplace pensions: Banning member-borne commission in occupational pension schemes’.
Scope of consultation This consultation applies to England, Wales and Scotland.
Duration of the consultation The consultation period begins on 26 January 2016 and runs until 9 February 2016.
How to respond to this consultation
Please send your consultation responses to:
Better Workplace Pensions Private Pensions and Stewardship Directorate Department for Work and Pensions 1st Floor, Caxton House 6-12, Tothill Street London SW1H 9NA Email: firstname.lastname@example.org How we consult Consultation principles This consultation is being conducted in line with the Cabinet Office consultation principles.
Feedback on the consultation process We value your feedback on how well we consult. If you have any comments about the consultation process (as opposed to comments about the issues which are the subject of the consultation), including if you feel that the consultation does not adhere to the values expressed in the consultation principles or that the process could be
improved, please address them to:
DWP Consultation Coordinator 2nd Floor Caxton House Tothill Street London SW1H 9NA
Freedom of information The information you send us may need to be passed to colleagues within the Department for Work and Pensions, published in a summary of responses received and referred to in the published consultation report.
All information contained in your response, including personal information, may be subject to publication or disclosure if requested under the Freedom of Information Act
2000. By providing personal information for the purposes of the public consultation exercise, it is understood that you consent to its disclosure and publication. If this is not the case, you should limit any personal information provided, or remove it completely. If you want the information in your response to the consultation to be kept confidential, you should explain why as part of your response, although we cannot guarantee to do this.
To find out more about the general principles of Freedom of Information and how it is
applied within DWP, please contact the Central Freedom of Information Team: Email:
email@example.com The Central FoI team cannot advise on specific consultation exercises, only on Freedom of Information issues. Read more information about the Freedom of Information Act.
1. Automatic enrolment will see 9 million people newly saving or saving more into a workplace pension scheme. This has created new responsibilities on Government and the pensions industry to protect savers and ensure that they are enrolled into good quality schemes that provide value for money.
2. In March 2014, the Government announced a charge cap and range of charge control measures to protect savers automatically enrolled into a workplace pension scheme.1 This included a ban on member-borne commission in workplace pension schemes used for automatic enrolment.
3. In October 2015, the Government published the consultation ‘Better workplace pensions: Banning member-borne commission in occupational pension schemes.’2 This consultation sought views on the most effective means of regulating to ban member-borne commission in relevant occupational pension schemes that provide money purchase benefits.
4. This paper forms the Government’s response to this consultation. It also includes draft regulations for consultation (see Annex B). The regulations, when made, will amend relevant regulations in the Occupational Pension Schemes (Charges and Governance) Regulations 2015.3 Following consideration of the responses to this consultation, the Government intends to lay the final regulations before Parliament to come into force on 6 April 2016.
5. In summary, the Government is announcing that regulations will be introduced preventing service providers from levying a charge on members in order to recover the costs of commission payments made to advisers for certain advice or services. The regulations will apply to occupational pension schemes that provide money purchase benefits and are being used by an employer as a qualifying scheme for automatic enrolment in relation to at least one jobholder. This will include additional voluntary contributions (AVCs) where these are used to provide money purchase benefits in these schemes.
6. The regulations will:
place a regulatory duty on service providers preventing them from levying a charge on members to recover the cost of any commission payments to advisers for certain advice or services in respect of any new commission ‘Better Workplace Pensions: further measures for savers’, DWP, March 2014, https://www.gov.uk/government/consultations/better-workplace-pensions-a-consultation-on-charging ‘Better Workplace Pensions: banning member-borne commission in occupational pension schemes’, DWP, October 2015, https://www.gov.uk/government/consultations/banning-member-bornecommission-in-occupational-pension-schemes http://www.legislation.gov.uk/ukdsi/2015/9780111128329/contents arrangements, or variations or renewals of existing commission arrangements. Service providers will be required to comply with this duty within 1 month of receiving confirmation from the trustees or managers4 that the scheme is being used as a qualifying scheme for automatic enrolment;
place a regulatory duty on trustees requiring them to inform their service provider whether the scheme they are managing is being used as a qualifying scheme for automatic enrolment. Trustees must provide this information within the later of 3 months of the regulations coming into force;
the date the scheme is used as a qualifying scheme for automatic enrolment; or the date the service provider becomes appointed as a service provider to the scheme;
enable members to opt-in to advice and services provided to them subject to certain conditions. These include that any such agreement must be set out in writing, including the cost of the advice or service and the duration over which the payment will be taken;
be enforced by The Pensions Regulator;
be introduced via a staged approach as follows:
o from April 2016 duties on service providers and trustees will come into force in respect of new commission arrangements; and o we intend to consult later in 2016 on regulations in respect of existing commission arrangements
7. This ban on member-borne commission will, in conjunction with rules made by the Financial Conduct Authority, protect the 9 million people saving into workplace pensions as a result of automatic enrolment, including around 20,000 members the Government estimates are currently saving into occupational pension schemes that contain commission. The Government has produced an Impact Assessment which sets out the financial impact of the ban, including on members, service providers, trustees, and advisers.
8. The following chapters summarise the views of respondents to the consultation and the Government’s reponse. The Government would welcome views on whether the draft regulations achieve the policy set out in this paper. A list of consultation questions on draft regulations is included at Annex A. The draft regulations are included at Annex B. A summary of the draft regulations is included at Annex C.
9. The Government would like to thank all those who submitted formal responses to the consultation and who engaged with the Department for Work and Pensions as part of the consultation process.
The term ‘trustees’ will be used throughout this document for simplicity, but this should be understood to also include managers in the case of the small number of occupational schemes that are not trust-based.
Chapter 1 – Commission This chapter summarises responses to the consultation questions on commission arrangements and non-monetary benefits.
Original Consultation Question: Do you have any comments on:
a) whether our understanding of adviser remuneration reflects how commission is typically paid in occupational schemes used for automatic enrolment;
b) whether there are any other examples of commission payment models that are used in these schemes and how common these are;
c) the prevalence of initial commission arrangements in occupational pension schemes used for automatic enrolment Original Consultation Question: Do you have any comments on whether nonmonetary benefits are a feature of commission arrangements and if so what form they commonly take?
1. As part of the consultation on the most effective means of regulating to ban member-borne commission, the Government sought views on how commission arrangements are structured and administered in occupational pension schemes used for automatic enrolment. The Government also sought views on the prevalence of non-monetary benefits as a feature of commission arrangements, and what form such benefits commonly take.
2. The Government believed it was important to test this understanding given that trustees are generally removed from commission arrangements between advisers and service providers, and may not be aware that a scheme contains commission.
3. In the consultation paper, the Government set out its understanding of typical commission arrangements in occupational pension schemes, explaining that commission typically relates to advice or services that have been agreed between a service provider5 and an adviser. The service provider remunerates the adviser and recovers this cost through member-borne charges. Commission may take the form of an up-front payment known as initial commission or an on-going payment commonly referred to as trail commission.
The consultation paper explained that by service provider we meant bundled pension providers, third party administrators or asset managers who provide services directly to trustees or managers of an occupational scheme used for automatic enrolment. More information on this can be found in the ‘Service provider’ section of this consultation response.
4. There was a general consensus amongst respondents to the consultation that the Government had accurately understood and explained how commission is structured and the various forms of such arrangements, including initial and trail commission arrangements.
‘The arrangements described broadly reflect the types of commission in these schemes.’ Standard Life
5. Some respondents noted the importance of distinguishing between commission payments made by service providers to advisers, and charges levied on members to recover the cost of commission payments.
‘It is important to draw a distinction between commission payments, which are from the service provider to the adviser / intermediary and charges which are deducted by the service provider to cover costs out of the arrangements the trustees have put in place to provide member benefits…However, there is rarely a direct link between commission amounts and charges or element of charges which are paying for that.’ Aegon
6. Many respondents commented that while commission does exist in occupational pension schemes, it is not prevalent, and generally features in older schemes.
Nonetheless, many acknowledged that both trustees and members were generally unaware that such arrangements were contained in a scheme.
‘While these costs are less common in major defined contribution schemes, we agree that most members are unaware of such costs where they do exist or that they may be paying for advice given to other parties.’ Hymans Robertson ‘Feedback from our members (acting as service providers to occupational pension schemes) suggests that initial commission arrangements in occupational pension schemes are not common for modern schemes, but some legacy schemes may be affected.’ ABI ‘We are not aware of many instances where occupational pension schemes pay commission, or disguised commission. However, new commission payment arrangements could be created.’ BC&E
7. The Government is clear, following an assessment of these responses, that its understanding of commission arrangements in occupational pension schemes is accurate. Although the draft regulations do not refer to the term “commission”, they reflect this understanding of commission arrangements.