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A consumer&#39s view

Two FSA initiatives look set to make life even tougher for beleaguered IFAs – in particular pension specialists and stockbrokers.

Since April 6, all employers and other providers which run money-purchase pension schemes are obliged to produce annual pension statements showing how much pension each individual member or policyholder will get on retirement.

These statements will be a nasty shock to many employees, as well as those making their own pension provision through personal and stakeholder pensions. The pension which the estimated accumulated fund will buy at retirement must, in future, always be expressed in inflation-adjusted terms.

The effect of this will be that the recipients of these pension statements will see an apparent dramatic fall in the value of their pensions – generally by as much as 50 per cent or more.

Having already seen the current value of their pensions savings reduced by as much as 50 per cent through three years of stockmarket decline, savers are not going to be best pleased.

The situation is exacerbated because the statement must assume that an index-linked annuity is purchased at retirement – which will reduce still further the apparent starting value of the pension.

In addition, the standardised statements will also assume that everyone is a married with a requirement for a partner&#39s pension, making the result look even worse.

Employee benefit consultantcy Mercer is convinced that these new-style, inflation-adjusted pension statements will be a public relations disaster for employers, pension consultants, and pensions in general. It could be right.

There is little doubt that, in the short-term at least,it will become difficult to persuade employers and employees to contribute more to make good the obvious shortfall that the vast majority of pension savers face.

Indeed, the new-style statement could even precipitate a wave of resignations from company pension schemes and a flood of individuals making their personal pension policies “paid up”.

Pension specialists have a one-year reprieve on new business. IFAs selling personal pensions are free to use the old non-inflation-adjusted projections which make everything look much more attractive – for one more year.

From April 2004, IFAs will have to use the new inflation-adjusted projections for sales literature too. However, anyone continuing to use the old projections, knowing that the inflation-adjusted figures must be used from next year, could lay themselves open to the charge of misselling.

Of course, once everyone becomes used to the inflation-adjusted figures, the new regime could act as a stimulus to pension saving. A dose of reality will not do savers any harm. But in the meantime things could be tough.

Meanwhile stockbrokers face a potential reduction in their income and increased competition as a result of an FSA shake-up of the relationship between stockbrokers and fund managers. There are those on the consumers&#39 side who think this is not before time.

Under the new regime, fund managers will no longer be able to pass on costs for stockbroker services such as analysis, research etc, other than dealing commissions, without the customers&#39 express permission.

The effect of this is obvious. The likelihood of investors paying more for fund management at a time when they have seen up to 40 or 50 per cent of their investment disappear in falling share prices is non-existent.

So fund managers will lean on stockbrokers to continue to supply non-dealing services at the same total price as the old “bund-led services”. In other words, the squeeze will be put on stockbrokers&#39 income.

And we are not talking peanuts here. The FSA estimates that out of £2.3bn in annual “bundled” commission and services, some £660m to £880m is for additional services.

Investors will, hopefully, be prepared to stand their ground and vote against any increase in management charges. If they do not, they have only themselves to blame if they find that even more of their savings disappearing into the pockets of the brokers and the fund managers.


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