Workplace pensions shake-up

Two workers in an automotive distribution factory to illustrate workplace pensions shake up

Financial planning in association with Scottish Widows bannerHow will an overhaul of the workplace pensions market affect your  business? Lynn Graves, head of new business development, corporate pensions, at Scottish Widows answers your questions

Q I run an automotive distribution company, employing 380 staff. My pensions adviser has told me that he will be introducing a fee for the support provided on our group pension plan. He has referred to the OFT pensions industry review and DWP recommendations, but I don’t really understand the detail. What does this mean for me? How will it affect my business?
P. Murray, Newcastle

A There are several changes concerning company pensions that will take place over the next 12 months. They are a direct result of the Office of Fair Trading (OFT) review of the UK pensions industry that was carried out last year, and the recommendations that followed a consultation with the Department for Work and Pensions (DWP). While larger organisations may be aware of these developments, many small and medium-sized companies are not, and as a result, do not understand how they could affect their businesses.

Three of the main points to emerge from the DWP recommendations include the implementation of a charge cap of 0.75 per cent, the banning of active member discount (AMD) charging structures for schemes and the abolition of commission for advisers.

But what will this mean to you, and other SME employers? Much will depend on the current structure of your scheme and your pension provider, as there are slightly different approaches to how providers are applying these changes. The most important thing that employers should be doing is speaking to their provider or adviser to find out how the new legislation might affect the business, and those members of staff who are saving into a company pension scheme.

For example, some other providers have chosen to introduce additional employer or employee fees in instances where they are having to reduce the charges on members’ default funds in order to comply with the 0.75 per cent charge cap. AMD schemes cut the charge that a member pays on a pension contract while they are actively working for a company. These have proved popular as a means of engaging employees, but if you have such a scheme in place, you must find out from your provider or adviser how this will alter and when you can expect it to happen.

As a result of the abolition of commission paid to advisers, some employers will need to start paying fees for the first time. So, if you have agreed a pensions scheme that has a commission-based structure built in, you need to understand what the cost will be when those commission payments are no longer allowed.

Last month (April 2015) we saw the introduction of the charge cap, and the next important date to keep in mind is April 2016 for the banning of AMD schemes and commission payments to advisers. However, the various pension providers appear to be approaching this in different ways; some are already starting to implement changes to comply with the new regulations, while others will wait until nearer the deadline.

The crucial thing for employers to understand is what it might mean for them in terms of additional fees. Since the Retail Distribution Review came into effect in January 2013 it is increasingly common for advisers to charge a fee for the services they provide and this latest legislation completes that transition from commission to fees. It will be important for you to understand, though, whether your provider is one of those that introduce additional employer fees as this could be a further cost to your business. Either way it’s important to be aware that this legislation is on its way. Get the information you need from your provider and adviser, and build.

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