Auto-enrolment may have made the workplace pension market a potential gold mine for providers and advisers, but it could become the scene for another huge mis-selling scandal, according to Aegon UK chief executive Adrian Grace (pictured).
Grace is concerned that a possible clampdown on consultancy charging, combined with lifting restrictions on the National Employment Savings Trust (Nest), could result in millions missing out on advice and being put into unsuitable pensions.
This ‘perfect storm’ would be bad news both for consumers and for the already fragile reputation of financial services, said Grace.
‘Corporates need advice to help them [select a pension], but without consultancy charging they won’t get advice and will default into Nest, and as a result, people will end up with bad retirement products,’ he said.
‘You can see the perfect storm. In 10 years’ time people will ask: “Why did all those people go into Nest?” And the answer will be: “Because they didn’t get advice and had something forced on them they didn’t want.” Isn’t this the same old scandal where people have not been given the right advice and [they have] bought inappropriate products?’
Lifting restrictions on Nest
Under the terms of its government loan, Nest operates with bans on transfers in and out, and a contribution cap of £4,400 for 2012/13, although this will rise in line with earnings.
Grace’s views on Nest come as experts, MPs and other providers are falling over themselves to call for the restrictions to be lifted.
Those arguing to lift the restrictions say the transfer ban must go for the government’s proposed pot-follows-member reform of the small pot pension regime to be effective.
They also argue the contribution cap should be removed to encourage employers to use Nest and for the scheme to be competitive and pay off its government loan.
An inappropriate solution
However, Grace said these arguments ignored Nest’s suitability issues.
‘Nest was designed for a very specific target market: the bottom end of the market,’ he said.
‘If you have more sophisticated buyers in the workplace, Nest is not an appropriate solution. It should stick to its target market.’
Grace denied that Aegon’s criticism had anything to do with its own recently launched auto-enrolment proposition for which it teamed up with BlackRock.
While defensive about consultancy charging, he said corporate advisers must demonstrate value to justify their fees.
‘Any consultancy charging has to be value for money for the employer and the employee: I’m not advocating a free-for-all,’ he said.
‘Employers need the right advice, and the only people that can give that are the intermediaries.’
Head start for the RDR
Auto-enrolment is not the only major reform on Grace’s agenda in 2013. Like for all providers and advisers, adapting to the retail distribution review (RDR) world will dominate the next 12 months for Aegon.
A recent broker note from RBC Capital Markets highlighted Aegon alongside Aviva as having paid lots of commission in the past and said the provider could see a drop in business levels in 2013. Grace denied this, arguing Aegon would retain advisers’ business thanks to its corporate and retail platform.
‘People who say “you’re a commission player” haven’t seen the value we bring in terms of that kind of [platform] offering,’ he said.
Grace said compared with rival providers, Aegon also had a major head start preparing for the RDR due to its well-publicised pension administration errors dating back to when it was called Scottish Equitable.
The errors may have cost the company £150 million in redress, but it forced it to look at itself and make changes a long time before rivals began preparing for the RDR, said Grace.
‘I joined the business four years ago and the first 12 months were pretty horrific. We had legacy problems, business model problems, cost problems… In some ways it was a blessing in disguise: it was a wake-up call to the entire business. There was a realisation we couldn’t carry on the way we were and we had to change things.
‘We’ve had four years to get things right. So we sit here, six weeks into the RDR, in a pretty relaxed position,’ he said. ‘I’m as buoyant as I have been in the past four years.’
2011-present Aegon UK, chief executive
2009-2011 Aegon UK, chief operating officer
2007-2009 HBOS, managing director of SME banking division
2004-2007 Barclays, chief executive of insurance division
2000-2004 Sage, managing director of small business division
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