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.