Member-borne commission
The ban on member-borne commission arrangements in trust based pension schemes is extended from 1 October 2017.
No new arrangements have been allowed since 6 April 2016. Now arrangements set up before then are to be ended too.
The ban applies only to schemes that provide DC benefits and are used for auto-enrolment.
Transitional measures
Transitional measures will delay the effect of the new ban. A grace period of six months means it will not be until April 2018 that some arrangements need be ended. This is to allow providers longer to adjust their processes.
In addition, it will remain lawful for members to be charged in future where, under a pre 6 April 2016 contract, a service provider made a payment of commission to an adviser before 1 October 2017.
Compliance
The obligation to ensure compliance lies chiefly with the "service provider", being the body (say an insurer) that provides administration services to the trustees. The trustees have a role too in exchanging information with the service provider within certain deadlines.
The scheme return to the Regulator will ask whether the service provider has confirmed compliance as the regulations require.
There are some general exceptions to the ban, including the provision of payroll and middleware services and opt-in services for individual members.
Member-borne commission is one name for charging structures that allow a provider to levy a charge on DC members' accounts to recoup the cost of commission it paid to advisers to the employer when the scheme was set up. Members can be unaware they are meeting these costs.
The ban does not affect trustees' rights to pass costs on to members where this is allowed under the scheme rules.
Early exit charges
Early exit charges (EECs) are to be controlled for the first time in occupational pension schemes. The restrictions apply to schemes providing DC benefits and protect members making use of flexible access.
An EEC is a charge that:
- arises where a member who has reached normal minimum pension age (generally age 55) takes benefits, converts benefits into different benefits or transfers benefits to another scheme
- is only imposed if the member is below normal pension age.
Normal pension age is the earliest age at which the member is entitled to receive benefits unadjusted.
Joiners on or after 1 October 2017
No EEC may be imposed on joiners on or after 1 October 2017.
Joiners before 1 October 2017
For joiners before 1 October 2017, the limit on EECs is the lower of:
- 1% of the value of the benefits being taken, converted or transferred or
- the amount provided for in the scheme rules as at 1 October 2017.
The value of benefits must be calculated in accordance with statutory guidance.
Service providers and trustees are under an obligation to ensure compliance with the restrictions.