View more on these topics

Banks could be the losers

I promised last week, with some regret, that I would almost certainly be returning to the Pensions Commission report in this column for a third time in a row.

This week, however, I do not want to go into enormous detail about the report itself, more on the reactions to it from sections of the financial services community.

The general consensus is that it could, in its current form, be a disaster, with up to 60,000 jobs in the financial services sector under threat.

Money Marketing has reported on views to the effect that proposals for a National Pension Savings Scheme “would see providers having to slash charges to a level that could not fund advice”, with the private sector being squeezed out of the GPP and group stakeholder market.

Employers wanting to opt out of the NPSS would have to match the terms it offers, so any employer opting for a scheme with a higher charge than 0.3 per cent would have to make up the difference through increased contributions.

Could it ever happen? Scottish Equitable pensions development director Stewart Ritchie says the 0.3 per cent charge target is “heroic” while my old mucker Tom McPhail at Hargreaves Lansdown wonders “whether Lord Turner’s proposals will ever get off the ground”.

If so, there would be nothing to worry about, surely?

What is interesting about their comments is how they appeared momentarily to drown out those from the fund management side of the industry. For example, ask yourselves why it is that Fidelity’s president of European institutional business Simon Fraser can say: “The introduction of the NPSS will address the issue of empty schemes where neither company nor employee are contributing.”

Meanwhile, Invesco Perpetual’s marketing director Rick White says: “The suggestion of the National Pensions Saving Scheme is something that we are certainly supportive of.”

Why this huge gap between the two sides? My own guess is that fund managers sense the opportunity to walk in and eat the life and pension companies’ lunch. Implicit in their largely uncritical support for Lord Turner’s NPSS proposals is the sense that they believe a 0.3 per cent annual charging structure is not impossible to live with.

Some commentators have cast doubts as to whether a 0.3 charge is realistic, given that this national fund will be administered by a quango. Standard Life talks about the Swedish experience, where the AMC was 0.45 per cent. Well, OK, maybe it will not be precisely 0.3 per cent, or not immediately, who knows? But what is sure is that it will almost certainly come in at half the cost of most stakeholder schemes.

So clearly, it will affect one section of the industry – although here too it is interesting to see how in the past couple of years companies such as Standard Life have been busy moving away from the life office model and reshaping themselves into “fund managers”. And let us not forget the Sipp, the secret weapon that is allowing Standard Life to vacuum up billions of pounds in extra funds under management.

How will Turner really affect IFAs? I am not sure it will be as bad as some make out. The reality is that up to 12 million people are currently not members of any occupational scheme at all. These are people that IFAs have failed to reach – if they have bothered to target them at all.

It is true that Turner has suggested that the self-employed should also be allowed to join the NPSS. If that is the case, how will an IFA compete with such a low charge and still give advice?

Again, the fact is that in most cases where advice is being given to pay into a pension, stakeholder schemes have largely wiped out much of the generous commission-based remuneration structure that existed a decade or so ago.

In so far as IFAs are giving pension advice to their well-off clients, they are almost certainly doing so on a pro bono basis. Or rather, on the assumption that they will earn money from that client in other areas.

My guess is that if there are any losers in this it will be the banks. Remember, the entire depolarisation strategy was largely devised for them, as were stakeholder products and the simplified sales approach recently launched by the FSA after some hilarious trials.

But if a bank customer can simply pop 30 or 40 a month into his work-based NPSS, and enjoy almost the same contribution into it from his own employer, where does that leave a Natbarcloyd Bank’s own not-so-cheap stakeholder product?

If the NPSS does have an effect, it will hopefully be that of driving IFAs further up market into an area where fees are paid for advice and planning rather than for sales.

By up market, I do not mean that the rich will or should be the only ones able to access this service but that the quality of what is on offer from IFAs will improve out of all recognition compared with what it is now.

Of course, I may be wrong. If so, advisers can comfort themselves in the knowledge that it is highly unlikely that the NPSS will be launched before 2010, even if Uncle Gordon says it will. Given that the average age of IFAs is rumoured to be 55, it means most of you will be 60 by the time it is introduced – just as you are about to retire.

Unless you were planning on working until 67 or 68, that is…

Recommended

‘Cut in growth rate bigger than expected’

Jupiter corporate bond manager John Hamilton says the Chancellor’s cut in the economy’s expected growth rate to 1.75 per cent – almost half that of his original estimate – is a bigger drop than expected but the market is likely to be reassured that his revised estimate is now more in line with the Bank […]

Tinker, tailor

It may be best to outsource portfolio management to a multi-manager where an IFA does not have investment expertise

FSA freezes out 600 rogue M&GI firms

The FSA says it has kept more than 600 unsuitable mortgage and general insurance firms out of the industry since the start of regulation. FSA records show that, at the first stage of the authorisation process, approximately 550 M&GI firms either withdrew or were refused permission to conduct business. At the second stage of the […]

Artemis Global Income: Making sense of global markets

The rally in cyclical ‘value’ stocks paused for breath in February, as investors took a more cautious tone and switched their attention back to defensive areas. In this article, Jacob de Tusch-Lec, manager of the Artemis Global Income Fund, explains how he has positioned the portfolio, given the many economic, geopolitical and policy risks that […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com