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Could auto-enrolment force IFAs to revisit pension clients?

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

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. The FSA applying rules retrospectively because it couldn’t make its mind up at the time.

    I wonder, what are the odds ?

  2. Wouldn’t it be administratively easier just to tell all the life and pension companies to stop accepting regular premiums in a given tax year without an reqest signed by the contributor in the same tax year, somewhat akin to ISAs now?
    If they can auto-enrol pensions cheaply then auto-dis-enrolling (or whatever the word is) should be a cinch.
    Sadly I supect the non-NEST regular premium industry will die so they could use their remaining resources to issue P45s to their staff and the FSA can consider its job complete.
    Quite how this is supposed to encourage savings is beyond me,
    Less “big society” more “Big Issue”.

  3. David Trenner - Intelligent Pensions 23rd June 2011 at 5:44 pm

    I disagree with both John and with some of Steve Bee’s comments. It certainly would not occur to me as investor to redirect contributions into NEST.

    NEST is essential for all those unpensioned employees stitched up by Norman Fowler’s crazy decision to allow opt-outs from Occupational Schemes from 1988 – a decision which the SIB finally noticed in 1994 was poor advice. But it is the Primark of pensions and most clients are looking for PRADA, not PADA!

  4. This shows the abuse of powers that the FSA has. If you never want this to happen again now is the time to act. There is an action you can take right now. Once you have taken this action then copy and paste this to as many IFA’s as you know!

    There is a strong rumour that the Treasury is proposing a very tight timetable for the scrutiny of the Draft Financial Services Bill. This would allow the FSA to reinvent itself in all but name. Could this be the reason for the rush? This is a recipe for legislating in haste and having to repent at leisure – as we are now repenting the haste with which Gordon Brown pushed through FSMA 2000 with all the resulting abuses.

    The White Paper proposes that the PLS should get under way well before the Recess. When Julian Caesar wanted a quick decision he would always hold his meetings on Friday, before the weekend! 12 weeks smacks of a rushed job which may suit those who want much of the same but is not long enough to review and change things. I think that it is entirely reasonable for every IFA reading this to write to their MPs to make representations to Sir George Young about the desirability of more time for the PLS.

    ACTION:
    Please will you ask your MP for more time from Sir George Young? I believe that the Speaker tries to allow every MP who wants to raise a point at Business Questions to catch his eye and I hope you and as many colleagues as possible will join in vociferous demands that more time is allowed. Otherwise this dog’s breakfast of a Bill will cause a lot of trouble in years to come.

  5. Totally agree with David Trenner. Don’t forget too the cap on Nest contributions – which is unlikely to be removed for at least 5 years. There are genuine concerns about Nests viability and there will be some intense competition between Nest and workplace savings schemes post auto-enrolment – which won’t just be provided by insuance companies – some of the forward looking EBCsand other consultancies will have a big role to play. To me the landscape looks very unclear and it will be some time before the visibility improves – so the suggestions in the article seem a little premature. And there is more to a pension than price!

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