Charge flaw in pension rules for RDR

1 July 2010 12:00 pm | By Helen Pow

The FSA concedes that its proposed corporate pension rules incentivise advisers to leave existing arrangements that should be switched in place in order to avoid consultancy charging and concedes this will be difficult to police.

Delivering the Retail Distribution Review - Corporate Pensions: Feedback to CP09/31 and final rules, published last week, confirms commission on new business will be banned while commission on existing group personal pensions will continue.

The document also says consultancy charging will go ahead with charges being either paid by the employer or coming out of members’ accounts.
Speaking to Money Marketing, FSA head of investment policy Peter Smith says: “Clearly, there is some incentive for advisers to leave existing arrangements in place rather than to recommend change if the change will lead to consultancy charging.

“That is a concern but it is a challenge for us to work out how we will supervise that because identifying where people have not done things rather than where they have done things is quite the challenge. We are working through how we can best identify that sort of thing.”

The FSA has allowed commission to continue on existing business under the RDR because it felt that banning it would not justify the costs involved in revisiting contracts.

Smith says: “Getting everyone to go through and revisit those contractual arrangements would be a big job, costly and time-consuming and, to be frank, where those arrangements are already in place we are not sure the net sum of all that activity would lead to a better situation than allowing those things to continue.”

But he insists the FSA will be watching out for providers and advisers who try to take advantage of the rules.

He says: “There will be activity that either encourages advisers to move business to those who still pay commission in order to put an arrangement in place that can continue after 2013, that is one of the risks we recognise.

“We have not seen any new developments in the six months since the consultation paper was published but I am not saying this is not happening.

“We get data from a variety of sources and monitor the advertising, marketing and financial promotions between providers and advisers and direct to consumers and employers to review that what is happening is what should be happening.

“If we thought any marketing was leading to a series of bad outcomes for the members of the schemes we would be discussing that with both the providers and the advisers and seeing what we thought was the appropriate action to take. We have the full range of regulatory powers available to us.”

Smith is confident that employees will end up with better pensions as a result of the RDR changes to corporate pensions.

He says: “Moving to a world where the actual charges are transparent rather than hiding behind the veil of commission will make it clearer for the employer to see what is happening and also for employees.

“Over time, we think that will lead to a situation where there are better conversations between advisers, employers and providers and employees will end up with better pensions even if the charges are coming from their own accounts.”

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