PS10/10: RDR & Group Personal Pensions
New rules on consultancy charging for corporate pensions
Adviser charging is a new approach to adviser remuneration which will come into play from the beginning of 2013, affecting all UK retail investment business. Advisers will need to set their services and charges and will prevent product providers from paying fixed levels of remuneration for business introduced and also ban them from factoring this for advisers.
In the FSA's RDR consultation paper (CP09/31) on 'RDR and corporate pensions', the FSA asked for feedback on how the principles of adviser charging would apply to group personal pensions, group stakeholder pensions and group self-invested personal pension (referred to collectively as GPPs) as a consultancy charge.
The FSA concluded that there was a 'read across' from the investment market to the GPP market. The FSA have now issued their final set of rules on how consultancy charging will operate. The following provides an outline of the requirements:
- The changes announced on the 25th June will abolish commission and implement the principle of Consultancy Charging to Group Personal Pension (GPP) and Group Stakeholder (GSHP) business written after the 31st December 2012
- Consultancy charging will not apply where the employer pays a fee for the advice or services received from an adviser firm in connection with GPP/GSHP business. These fees will not need to be disclosed to an employee
- Consultancy charging will apply where an employer receives advice or services from an adviser firm in connection with a GPP or GSHP and the costs of these services is to be met from individual member accounts/contributions because the employer is unable to, or unwilling, to pay a fee to the adviser firm
- From 2013 remuneration for giving advice or providing services to an employer in connection with a group personal pension scheme or group stakeholder pension scheme may only be taken as a consultancy charge or by a fee payable by the employer
- Advisers cannot accept (including an associates) any other remuneration or benefit of any kind (regardless of whether it intends to refund the payments or pass the benefits on to the scheme)
- Consultancy charges cannot be taken over a different time period, or on a different basis from what was initially agreed
- A firm must return payments received if the service offered is changed or terminated
- Consultancy charges may not include:
- A share of normal charges product/scheme charges;
- A commission payable from a retail product.
- The Consultancy Charge should be 'representative' of the cost of giving advice or provision of the relevant service. The adviser should also adopt a standard charging structure which considers :
- The best interests of the employee and employer;
- The charge should not vary according to the provider being recommended;
- Where the consultancy charge is taken as a percentage of the fund, the adviser firm must clearly demonstrate how the charge will increase as the value of the fund increases.
How will consultancy charging operate?
The charge has to be disclosed in writing to an employer well before the advice or service is given, in plain and simple language and where possible, in cash terms.
If the payment is payable over a period of time, the adviser will need to disclose:
- The amount and frequency of each payment due;
- The period over which the consultancy charge is deductible;
- An explanation of the implications for the employer and its employees if an employee leaves the employers service;
- An explanation of the implications for the employer and its employees if contributions to the scheme are cancelled before the consultancy charge is fully paid.
Where a consultancy charge is to be deducted from individual accounts, consideration needs to be given as to the fairest way of doing this. The FSA are taking forward various suggestions with industry bodies.
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