A policy ‘mania' to deliver pensions on the cheap could harm the IFA sector, writes Tom McPhail...
Advisers could be early casualties of the government's plans to cap charges on auto-enrolment schemes.
At the moment, the Department for Work and Pensions is still consulting on a range of possible courses of action. Nothing is set in stone, but IFAs could find themselves sacrificed by employers and pension scheme providers if costs are squeezed by a price cap.
Some elements of pension provision are essential. Fund management is a given, though it might be that active managers also lose out to passive solutions as ways are sought to cut costs.
What a pension fees cap could mean for IFAs
The establishment of the scheme itself and the basic scheme administration also can't be dispensed with, though ways can always be found to do it a bit worse, if price pressures demand it. Why bother with good member communications and a scheme helpline when you can outsource the whole operation to Mumbai and run a website that doesn't work?
Employers can be forced to pick up more of the auto-enrolment compliance costs, as the burden is shifted out of the scheme and onto the sponsoring employer. Payroll interfaces with the scheme administration, for example, could be paid for out of a fee to the intermediary, or it could come out of scheme costs.
What of the intermediary in all this? Can they still justify their role in the value chain when the firm grip of a charge cap starts to strangle the life out of the scheme?
Why, for example, would the scheme pay for an at-retirement income broking service – provided by an IFA – when, instead, the scheme could just offload its members to a single life company?
It may be that none of these things will come to pass, and I hope they do not because IFAs do have a valuable role to play in auto-enrolment.
I do think though that a policy mania for delivering low costs at any price could end up doing more harm than good, both to IFAs and the clients they serve.
Tom McPhail is head of pensions research at Hargreaves Lansdown
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