Bans on member-borne commissions and consultancy charging

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Bans on member-borne commissions and consultancy charging
  • Distinguishing between ‘member-borne commissions’ and ‘consultancy charging’
  • Ban on member-borne commissions in occupational pension schemes
  • Ban on new commission arrangements in qualifying schemes since 6 April 2016
  • Extension of ban to include pre-6 April 2016 commission arrangements
  • Ban on consultancy charging in occupational pension schemes
  • Ban on DC automatic enrolment schemes since 14 September 2013
  • Ban extended on 6 April 2016 to cover new consultancy charging arrangements in DC qualifying schemes
  • Further ban extension to cover pre-6 April 2016 consultancy charging arrangements
  • Ban on member-borne commissions in personal pension schemes
  • More...

Bans on member-borne commissions and consultancy charging

There have been concerns that member-borne commissions and consultancy charging:

  1. have led to some members bearing charges without realising it or without accessing services made available by an adviser, and

  2. are a barrier to switching, particularly as advisers are unlikely to want to lose the benefit of these charges by recommending a switch to a pension arrangement which does not offer any commission or consultancy charging, even if that arrangement offers better value for money for members

Measures have therefore been introduced to prevent certain types of personal pension schemes and occupational pension schemes from using such charges. Over time, these bans were widened in scope.

The enabling powers permitting the introduction of these bans can be found:

  1. for occupational pension schemes, in section 43 of the Pensions Act 2014 (PA 2014) and PA 2014, Sch 18

  2. for personal pension schemes, in the general rule-making powers given to the Financial Conduct Authority (FCA) under sections 137A, 137T, 138C and 139A of the Financial Services and Markets Act 2000 (FSMA 2000)

Distinguishing between ‘member-borne commissions’ and ‘consultancy charging’

In a pensions context, a member-borne commission refers to an arrangement where the 'service provider' (defined below) remunerates an adviser for services provided typically to the employer (although the member may also be the recipient) and recoups this cost by imposing increased charges on members'

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