Bringing you live news and features since 2006 

Aviva turns off commission taps


Aviva will stop paying initial commission to company pension advisors from the end of 2014, 15 months before commission is actually banned in April 2016.

The announcement came as the insurer released details of how it intends to meet the new workplace pension reforms, including the charge cap and the ban on active member discounts.
Laith Khalaf, head of corporate research at Hargreaves Lansdown, says: “Advisers who had been hoping to sit on their hands and collect commission until 2016 better make other plans, because Aviva won’t be the only insurer to turn the taps off early.
“As a result, employers can probably expect a rueful call from their adviser to discuss fees going forward. This is likely to prompt a wave of scheme reviews as those employers consider, perhaps for the first time, whether they are getting value for money from their adviser.”
Aviva is taking measures to meet the new workplace pension rules, announced by the DWP in March 2014.
These rules require pension providers to stop paying commission to advisers by April 2016. They also impose a charge cap on pension default funds of 0.75 per cent, effective from April 2015, and a ban on Active Member Discounts from April 2016.
While these rules are in theory separate, in practice they come as a job lot, because the charges in part reflect the commission paid to advisers. Hence while commission is in theory available until 2016, insurers are likely to turn the taps off before then to accommodate the charge cap.
Aviva has announced the following:
                •             Their schemes will comply with the 0.75 per cent charge cap by the end of 2014
                •             They will move all schemes with an active member discount to the lower, active charge by the end of 2014 (except schemes with an active charge below 0.35 per cent)
                •             They will stop paying initial commission to advisers by the end of 2014
                •             They will however continue to pay ongoing commission until April 2016
                •             They may charge the employer where the scheme is small
These changes are going to put the squeeze on advisers who will now have to charge fees sooner rather than later. This probably wasn’t in the plan for many of them – a recent survey conducted by Hargreaves Lansdown found that half of employers have not yet been told by their adviser about the forthcoming commission ban.
The survey also found one quarter of employers are not willing to pay fees to a corporate pension adviser, and so intend to deal with a provider directly.
Some 14 per cent of survey respondents did not actually know if their scheme paid commission or not, which suggests the move to ban commission is probably justified, and that the transparency of fees is likely to prompt a lot of employers to address the question of what value they put on their pension adviser.
Commission is already banned on new schemes written since 1 January 2013. However it is still currently permitted for schemes written before that date. This probably partly explains why half of employers used their existing scheme for auto-enrolment – the alternative would have been to pay fees to their adviser.
Now those fees are going to arrive anyway, those employers may well put their auto-enrolment pension scheme under the microscope again. They will almost certainly have to do this anyway, in light of the pension freedom announced in March’s budget, says Khalaf.

Latest News

European ETFs raised USD47.8 billion in Q1, a 15 per cent increase compared to the same period in 2023, according..
LSEG Lipper’s March report finds that globally equity ETFs (+EUR113.2 billion) enjoyed the highest estimated net inflows for the month,..
Morningstar has published a review of the European ETF market for the first quarter 2024, which finds that it gathered..
ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..

Related Articles

Kristen Mierzwa, FTSE Russell
Index Investments Group (IIG), a division within index provider FTSE Russell, has extended its range of indices through two new...
US ETF issuers of active ETFs are facing an increase in fees from the big custodian firms, such as Charles...
Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by