Regulation will be introduced to prevent service providers from levying a charge on pension scheme members to recover the cost of commission payments to advisers for advice or services. This will include additional voluntary contributions when these are used for money purchase benefits in the scheme, the DWP said.
The DWP announced in March 2014 that it intended to impose a ban on member-borne commission in occupational pension schemes used for auto-enrolment. The latest announcement is in response to a consultation launched in October 2015, looking at the best way to impose such a ban.
The ban will apply to all occupational pension schemes that provide money purchase benefits, and are being used by an employer as a qualifying scheme for automatic enrolment, and will apply from 6 April 2016 in respect of new commission arrangements. The DWP intends to consult later in 2016 on regulations in respect of existing commission arrangements
The DWP said that responsibility for removing commission arrangements will fall to service providers, rather than to pension trustees. The October consultation document had proposed both options, but many respondents said that trustees are "typically one step removed" from commission arrangements between advisers and providers and unlikely to be aware of commission arrangements in a scheme.
Pension law expert Simon Tyler of Pinsent Masons, the law form behind Out-Law.com said: "We support the DWP’s approach in allocating responsibility for removing commission arrangements. Trustees will often not be aware of whether commission is being paid, and it is therefore right that trustees should merely be under a duty to inform service providers that the scheme is a qualifying scheme used for auto-enrolment. It is then for service providers to remove the commission arrangements."
The DWP has also released a further consultation document, looking for responses on whether the draft regulations meet its policy decisions.
The new regulations will be enforced by the Pensions Regulator, which welcomed its new role in enforcing the ban.
Andrew Warwick-Thompson, the Regulator's director for regulatory policy, said: "The ban on member-borne commissions is another important and welcome step towards ensuring pension savers get value for money."
"Assessing and securing value for money remains a key trustee responsibility for all pension schemes, and the ban will further support trustees in obtaining value for members of DC schemes," he said.