Preparing for the changes to the pensions market

As more and more providers start to reveal their stance on the charge cap and removal of commission and active member discount pricing, we thought it would be worthwhile to look at what these are, and the steps businesses should be taking to prepare for this.

Each provider has taken a slightly different approach and they are implementing the changes at slightly different times, so the summary table below covers some of the key announcements so far:

Provider Charges Commission


Will look to move all schemes priced on AMD to the discount rate. Where this represents a very low annual management (AMC), it may look to charge a £100pm admin fee.

Initial adviser commission will be removed later this calendar year, with level commission continuing until 2016.


Will look to move all schemes priced on AMD to the discount rate. Where this represents a very low AMC, it may look to charge a monthly fee.

Initial adviser commission will continue to be paid until April 2015, but will be phased out over this period. Level commission will continue until 2016.

Scottish Widows

Intends to move any active member discount priced schemes to the discount rate plus five basis points (subject to a 35bps floor).

Initial commission for new and existing schemes being removed from November 2014. Level commission payments continuing until 2016.

Standard Life

The charge cap will be introduced by April 2015 with active member discount priced schemes re-priced on an individual basis.

Initial and level commission will be removed from October 14 with a fund-based commission alternative offered until April 2016. Level commission will continue for existing members until April 2016 unless the AMC is greater than charge cap, in which case it will be removed in April 2015.

Scottish Life

All schemes that are above the charge cap will be re-priced on an individual basis, and Scottish Life does not currently operate any AMD priced schemes.

Initial and level commission will continue to be paid for new and existing members until April 2016.

Friends Life

Will look to move any active member discount priced schemes to the discount rate or better.

Commission will remain in its current format until 2016.

In light of these stances, you will be starting to get a better picture of how this is going to affect your businesses pension arrangements. So what steps should you be taking?

Step 1 — Assess

(a) Determine the level of commission currently being paid to your adviser on a level basis — i.e. three per cent level commission on a £2m annual premium equates to circa £60,000 over the next 12 months.

(b) Clarify specifically the services being provided by your adviser and the basis of the existing contract (if any).

(c) Obtain a detailed fee proposal from your adviser as to the cost of providing the current services on a fee basis.

(d) Consider if there are any areas you wish to add or remove from the service proposition.

(e) Contrast and compare (a) and (c) to determine the value from current your structure.

Step 2 — Review

(f) Consider what services you need for your employees both today and going forward. The requirements are changing and the way you engage with your employees will need to evolve as well. Both auto-enrolment and the changes as to how people can access their pensions mean that employees will require a different approach to engagement going forward.

(g) Consider your enhanced governance requirements, the role and objectives of the governance panel and particularly how you are going to address the Pensions Regulator’s six key principles. Your provider may offer certain support to assist in this, but you will also need independent support and evaluation.

(h) Benchmark the fees and services you have been provided with other suppliers and advisers in the market.

Step 3 — Evaluate

(i) Agree the range of services that are required to meet your objectives — i.e. a good structure for ongoing governance.

(j) Evaluate the current income generated from level commission and how this may best be spent. Does allowing the current arrangement to exist represent value for money to both you and your employees?

(k) Could the funds instead be allocated to improving services or transitioning the arrangement?

(l) At a minimum, establish a fee offset contract with your adviser so a proper transition structure is in place in the run-up to 2016 and beyond; otherwise the current income is simply used up and you may need to pay as yet unsubstantiated fees from April 2016.

By taking this action, sooner rather than later, you can consider what services are best suited to your longer-term needs, as well as establishing the budget you will need available from mid-2016 to provide them.

For more information on auditing your auto-enrolment scheme and transitioning your auto-enrolment support, take a look at our re-enrolment guides.