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TUC urges Government to prevent employers using pensions contributions to pay for consultancy around auto-enrolment

The TUC has called on the Government to ban employers from passing on the costs of taking advice from consultants on the implementation of their new legal duty to automatically enrol staff in a pension to staff pension pots.

The largest employers need to start enrolling staff from this autumn, with other employers following in a phased programme finishing with the smallest employers in 2016. Many employers are seeking help from outside consultants to ensure that they are meeting their new pension duties.

Large employers appear to be absorbing the costs of outside help, but the TUC has claimed some medium and small employers are planning to recoup the costs of outside consultancy from pension contributions - an additional charge on top of those already levied by pension providers.

This practice is legal but in a letter to pensions minister Steve Webb the TUC is calling on him to use his powers to cap charges in pension schemes to outlaw consultancy charging.

The Department for Work and Pensions (DWP) confirmed the compatibility of consultancy charging and automatic enrolment, following confusing guidance issued by the Financial Services Authority (FSA).

The FSA had suggested that fees for advice taken out of pension contributions could lead to employers failing to satisfy rules on minimum contribution rates. Non compliance with these rules can lead to a series of fines from the Pensions Regulator.

But, the DWP explained this only applies where fees are paid before contributions enter an individual's pension pot - and therefore consultancy charging is lawful if fees are paid after contributions have entered the pension scheme. Whether or not staff will appreciate this distinction is highly debatable, says the TUC.

TUC general secretary Brendan Barber said: "It is completely wrong that staff who pay in auto-enrolment pensions should have to meet the employer's costs of making sure that they obey the law. This is a cost that should fall on the business as a whole.

"Particularly in low-paid sectors where staff change job frequently, those unlucky enough to work for employers using consultancy charging could find a big chunk of their pension going to consultants, rather than to provide retirement income.

"Auto-enrolment is a huge advance and the TUC is a strong supporter, but we worry that consultancy charging will sour its introduction. We applaud pension schemes such as NEST who have said that they will not implement consultancy charging."