If regular-premium personal pensions face annihilation at the hands of auto-enrolment, then how long before the regulator decides IFAs should write to existing clients saying they would be better off in their new company scheme?
We do not yet know whether there will be an RU64 for advisers. In February, Nest disclosed that it had been in talks with the regulator about such a plan but no decision appears to have been made as yet. But whether or not a formal regulation is issued, Nest and auto-enrolment will create a series of de facto benchmarks for pensions that do not exist today. That in turn could in time lead to IFAs having to revisit all clients with regular-premium pensions to test whether suitability recommendations still apply.
It goes without saying that Nest will become a benchmark for private sector group pensions. But the one million or more new workplace pension schemes that will be in place once auto-enrolment is comp-leted will also create a new yardstick for regular-premium personal pensions, new and old.
Much of the focus on Paradigm pensions partner Steve Bee’s comments about the death of personal pensions has focused on new business. What IFA is going to be able to advise a regular-premium personal pension to any of the 10 million people freshly enrolled in a workplace scheme with an employer contribution?
And even where the emp-loyer’s scheme is Nest, the prospect of the contribution cap being removed before 2017 would see another objection to the state-sponsored plan removed.
But what of IFAs’ existing client books? If setting up a regular-premium personal pension is not best advice for a client seen today, then the FSA or its successor could decide the same rule should apply retrospectively.
Part of the problem for IFAs is they do not know what the regulator might do. Do you cover it off by writing to all your affected clients or do you live with the risk and hope that nothing happens?
That said, thousands of clients with regular-premium personal pensions are already in an occupational scheme and will be happy to keep their own personal pension going separ-ately, as they have done in the past. They may not want their employers to know what they are saving or they may not like the look of the schemes they are being offered through the workplace.
Nest has no track record to speak of but if it launches with-out any hitches and demon-strates it is doing what it is supposed to, the untried supplier argument will fall away. And when we get beyond implementation of the RDR, things will be perceived differently. With low-charge alternatives all around, a higher-charging regular-premium personal pension paying a trail commission to an adviser will start to look increasingly out of place.
Trying to predict what the regulator will do in future is as much crystal ball gazing as science and assessing risks has always been the name of the game in compliance.
It may be that IFAs can afford to wait to see how successful Nest and auto-enrolment are before taking action on their regular-premium pension backbooks. But eventually, against a backdrop of universal access to low-cost workplace schemes and a successful Nest, old personal pensions paying trail commission to advisers will look increasingly vulnerable.
John Greenwood is editor of Corporate Adviser