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A new role for FSA as it becomes a critic of Government&#39s policy

The FSA has openly criticised Government policy for the first time, warning that the pension credit could confuse savers, a move seen by some as a sign of the FSA coming of age.

With last week&#39s publication of the paper, Financing the Future: Mind the Gap, the FSA has entered the debate over Government pension policy. Until now, it has been content to stay on the sidelines and let others engage the Government.

What has this brought about this abrupt change of attitude?

One answer is that it is a sign that the FSA is now an independent body. Before last December 1 at N2, it was still nominally a combination of the existing regulators while it is now, in theory anyway, an independent body capable of voicing opinions.

The industry has debated extensively the degree of independence that the FSA enjoys, with some saying it is on a short leash from the Treasury while others suggest it is vying with Ron Sandler for control over the direction of the industry.

Aifa director general Paul Smee says: “You would not have expected this sort of thing to have happened before N2. This is the difference between a regulator which is effectively an extension of Government and one which is one step removed. It is a welcome move that a body with the expertise of the FSA should be able to publicly criticise aspects of Government policy.”

Of course, the Financing the Future paper did not exclusively criticise the Government and, in fact, the criticisms played only a minor part of the overall conclusions of the paper.

The paper made many observations, including warning that the FSA is investigating income-drawdown sales and advice, confirmation of plans to develop an interactive fact-find for consumers by the end of the year, questioning whether consumers understand equity-release products and warnings that providers of annuities potentially face going bust.

But it is the statements about Government policy that have drawn the most attention.

On the pension credit – the Government measure to encourage savings through pensions and reward those who save – the FSA is warning that it is actually a disincentive to save.

The warning goes further, saying for some people it may not be in their best interests to save through a pension at all – hardly the message that the Government wants to be promoting when it is trying to convince more people to save through stakeholder.

Another veiled warning comes on Cat standards, with the FSA saying there is no case to extend them into decumulation product areas such as annuities, income drawdown and equity release.

It says these product areas are too new to introduce strict standards and it could hamper innovation and reduce competition.

Again, this is in opposition to much of the Government thinking about things. It has in the past shown a fondness for Cat standards and many believe Ron Sandler will recommend more such measures.

Neither of these statements is new. They have been repeatedly expressed by the industry. It is well known that the majority of pension providers do not believe the pension credit will accomplish much in terms of encouraging greater private provision.

If anything, they feel it will muddy the waters and confuse people at the lower end of the financial spectrum on what the state will and will not provide.

Similarly, it is hardly a secret that providers do not like the Government limiting the scope on innovation of products. Most Cat-standard products have hardly been a wild success.

It is, however, more a matter of who is saying these things rather than what they are saying.

Clerical Medical head of intermediary planning David Shelton says: “It is right and proper that the regulator, which is a key part of this industry, ought to have a view and ought to express that view about Government policies. Its perspective is very valuable to the larger debate.”

Others caution that before the FSA gets too heavily involved in a public debate over Government policy, it will have to look at how far its statutory objective allows it to get involved.

LIA director of public affairs John Ellis says: “It is a curious move. Why is it intervening with Government policy, what are the overall justifications for doing so? Perhaps it is saying that pension policy is in such tatters that these areas need to be highlighted because they may cause problems in the future.”

Then there is the view that it is easy to speak up but not so easy to come up with answers.

Skandia head of pension marketing Peter Jordan says: “The FSA is entitled to have a view as much as anyone else is. It is easy, however, to have a negative view on things but it is not so easy to come up with solutions to a lot of these issues.”

Finally, there are those IFAs who believe the FSA should actually go much further and take complete control over financial services policy.

Wentworth Rose managing director Philip Rose says: “If we are going to have this almighty regulator, we might as well give it the overall policy control for the industry.”

Most welcome the new attitude by the FSA and would like to see more of it. After all, this is the same FSA which often talks about its open and fair attitude towards regulation. It seems reasonable to many that it should be open and fair about its attitudes towards Government policy.


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