FSA PS10/10 - Factoring ban remains but commission on existing schemes allowed
The post-2012 ban on factoring by connected parties is to remain but insurers will be able to continue to pay commission on existing schemes, the FSA has confirmed.
Publishing the final rules for GPPs the FSA has also confirmed that, as expected, the ban on commission on new schemes will remain.
The permission to pay commission indefinitely on existing schemes has divided opinion amongst advisers, with some arguing that an outright ban would have created regulatory churn of schemes post-2012.
The ban is being extended to commission on investment products linked to occupational schemes that are sold as GPP alternatives.
Consultancy charging from GPP contributions will be allowed on a £-for-£ basis.
In feedback to questions put to the market by the regulator in March, the FSA says it sees no reason why employers with existing GPPs should reduce their contributions. It argues some may take the opportunity to review their pension arrangements, but any that reduce their contributions are likely to be influenced by commercial considerations (such as a comparison of employer contributions), rather than its proposed rules.
The FSA has also rejected the argument that employers without current pension provision will be deterred from setting up new GPPs.
It says evidence points to very few truly new schemes in the GPP market, rather, the new business reported by providers is the result of existing schemes being switched to replacement providers. Secondly, it argues, the GPP industry has failed to convert the large number of (mostly) small employers without any pension provision into setting up schemes. It adds that these employers are not generally commercially attractive to providers and advisers alike.
The policy document confirms that the ban on commission paid in respect of investments linked to occupational pension schemes applies to all investment products, not just to life assurance contracts.
The FSA paper says: “We note that there was a clear majority of respondents in favour of allowing commission to continue on existing GPP schemes, both in the run-up to the new rules coming into effect and beyond. We confirm that this will be allowed.
“We agree with those respondents who suggested that there was a risk of inappropriate sales of new schemes or switches of existing schemes before the new rules come into effect. It is clear we will need to ensure that sufficient supervision and thematic resources are committed to mitigate this risk, and we intend to monitor the situation closely and take action if necessary.
Steven Cameron, head of business regulation at Aegon says: “Had the regulator not allowed commission post-2012, it would have created a regulatory initiated churn because future new entrants would be on different terms to the existing members. This regulatory-generated churn would not have been good for anyone. “
John Lawson, head of pensions policy at Standard Life says: “It is disappointing providers can still pay commission post-2012. Would this regulatory-enforced churn be a bad thing? It would have meant that more employers and members would have had their schemes reviewed to make sure they were receiving the best possible deal.”