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Aifa says Nest shows factoring can work


Aifa has called on the FSA to review its ban on provider factoring, pointing to Nest’s charging structure as a good example of how factoring can work in practice.

Nest will apply a 0.3 per cent annual management charge on members’ funds as well as an up-front charge on contrib- utions of 1.8 per cent to cover the cost of setting up the fund.

Once the set-up loan from the Government is paid back, that contribution charge is expected to fall away.

In its submission to the Treasury select committee’s RDR consultation, Aifa says: “The initial cost of Nest is not being paid up front by members but is instead being paid for by the factoring of the 1.8 per cent ongoing charges being taken from all contributions.

“This is evidence that schemes prefer to pay for the initial cost of establishment by monthly deductions.

We therefore call on the FSA to review its ban on provider factoring and work with the Office of Fair Trading to facil- itate a standardised approach.”

In the FSA’s final RDR rules on adviser-charging, published in March 2010, the regulator said the OFT had advised it that setting standardised factoring rates would breach competition law because they “have the object or effect of fixing prices”.

The FSA said: “We have seen no real evidence that banning factoring would impact regular savings products or that factoring encourages savings.”

Last June, it confirmed that the ban will be extended to group personal pensions and investment products linked to occupational schemes that are sold as alternatives to GPPs.

Aifa says that while Nest can spread its set-up costs over time, anyone setting up a group personal pensions has to pay the costs up front and that raises concerns about competition between the two.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Just the sort of thing you might expect a provider to say.

  2. None so blind as those that don’t want to see!

    The FSA said: “We have seen no real evidence that banning factoring would impact regular savings products or that factoring encourages savings.”


    Stakeholder removed distribution costs in favour of fees but the clients didn’t favour fees and the net result was the removal of distribution costs as well as distribution!

    In spite of the massive pension shortfall issues in the UK only around 4 million stakeholder pensions have been sold since 2001 mainly inflated by block transfers such as The Building and Civil Engineering (B&CE) scheme. Why is the FSA so blind to the evidence of their own eyes? B&CE aside, stakeholder pensions have failed against their original objective of spreading pension membership among lower earners. The government removed distribution costs and forgot that this would also remove distribution especially

    Another problem is that the means testing rules can make it uneconomic for lower-income employees to save and equally dangerous to sell to these groups.

  3. Well said Simon!

  4. You can’t educate a plank

  5. I was contacted this week by BMG research on behalf of The Pensions Regulator to canvas my knowledge of NEST. They seem to expect me to have already publicised it for them for free and to have given details about it to existing schemes I advise.
    I pointed out that having been tricked by Gordon Brown into doing just that about the pensions simplification rules before A Day only to find he changed them at the very last minute I would wait until the actual legislation had been passed so I could say what would happen rather than what might. It seems to have dawned on them this might lead to a last minute panic, but as I helpfully pointed out, that’s a problem of the government and the FSA’s making, not mine.
    I revealed that not being a charity I could only afford to give advice if paid for it and that sadly I don’t anticipate employers will be queuing round the block to pay for advice on NEST unless I could add value over and above my fees, which will depend upon the details not yet finalised by the government.
    Quite how it will be distributed, promoted and serviced when the only organisation making money from it will be Tata with staff in India and that is for the administration of what might be exclusively default index tracking funds from a single provider, I can only guess. Perhaps all those soon-to-be-redundant UK taxpaying pensions staff could get a job in a Mumbai call centre, or am I being too cynical about a wonderful government initiative which will helpfully destroy the bulk of the remaining UK pensions industry which Brown hasn’t already annihilated during his long period of misrule?
    I suspect employers and employees will just look upon it as another tax, or at best a higher level of NIC. I haven’t yet seen anything suggesting people will want to pay for advice on that, why would they?
    As others have already said, the people who will most need advice will be those who unwittingly deprive themselves of means tested benefits by being in NEST and they will not be aware of it or pay for the advice. With the prospect of a hindsight review blaming anyone who did give advice leading to that situation I suspect many companies will want to steer very well clear of it.
    C’mon turkeys, last one in the oven is a cissy!

  6. The FSA and their Treasury string pullers would be better employed cleaning windows – they’d see more of the world that way!

    Better still read these posts!

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