ABI points to pension investment decision risks if consultancy charging ban is implemented

The trade body said that the ban would have an impact on employers' pension investments decision-making.

Last week Pensions Minister Steve Webb said that regulations to ban the practice would be published "as soon as possible".

Consultancy charging allows financial advisers to deduct a fee directly from the pension pots of employees to pay for advice given to the employer. It was introduced as a result of the Retail Distribution Review (RDR), which ended commission payments to financial advisers. A Government review has since concluded that these charges can have a "disproportionately negative impact" on people who change jobs regularly, and that the measures in place to prevent advisers from deducting high charges from employees' pension pots are inadequate.

However, the ABI said that a prohibition on consultancy charging would "reduce the availability" of advice to employers on pension investments.

"We agree it is vital that savers have confidence that the pension savings system can be relied on and charges are an important part of that," Steve Gay, the ABI's director of life, savings & protection, said in a statement. "However, the Government's decision to ban consultancy charging in automatic enrolment schemes creates a different risk to the success of pension reform in that it will reduce the availability to employers of advice and support to ensure they make the right pensions decision for their employees. We need to discuss how that risk can be mitigated."

"Pensions charges generally have fallen dramatically over the past decade and the average charge on new automatic enrolment schemes is currently at 0.52%. The industry charges agreement announced in January will ensure that pension charges and costs to employees are disclosed in a consistent and transparent way. The industry will continue to engage with the Government ahead of the proposed consultation," Gay added.

Since 1 October last year companies with more than 120,000 employees have had to automatically enrol 'eligible jobholders' aged between 22 and the state pension age who are earning more than £8,105 a year into a workplace pension scheme. Work pension schemes must meet minimum regulatory requirements in order to be suitable for auto-enrolment.

Other, smaller, firms will have had to begin the process of auto-enrolling their workers into a pension scheme which meets minimum requirements, or the NEST scheme instead, from later 'staging dates' running into 2018. By the end of 2013, all companies with 500 employees or more will have begun automatic enrolment.

Once the process begins, employers are legally obliged to make contributions towards the pensions of automatically enrolled workers who do not opt out of the scheme. Between six and nine million of the 11 million people expected to be eligible for auto-enrolment will be new savers or saving more than before, according to Government estimates.