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FSA builds assault course through the decision trees

The Government and the FSA appear to have failed in their primary

objective of removing the need for financial advice from stakeholder


Pension providers and IFAs claim that last week&#39s publication of the FSA&#39s

current thinking on decision trees is probably the best-ever advertise-

ment for independent advice.

The information designed to help consumers decide if a stakeholder is

appropriate for them runs to more than 20 pages. Experts fear the majority

will not get past the first couple of pages in the quest for a pension. It

is predicted those who do will probably end up seeking the services of an


Scottish Life communications manager Alasdair Buchanan says: “I cannot

believe the FSA really expects the average person in its stakeholder target

group to wade through this amount of paper to make an informed decision on


That feeling is backed by Clerical Medical pensions strategy manager Nigel

Stammers. He says: “I doubt if manypeople will get through the obstacle

course without falling down a few potholes and then seeking professional


Pension experts believe the FSA document goes a long way to highlight just

how complex the issue of advice on pensions is and how confidence is not

going to be instilled in the product simply by devising a few diagrams.

Unfortunately for the Government and the FSA, this is not just a knee-jerk

reaction from a few pension providers or IFAs intent on forecasting doom

and gloom over stakeholder. It is the verdict of most of the pension

industry and a damning indictment on the publication of the FSA&#39s

discussion paper on stakeholder.

The paper outlines the FSA&#39s approach to the regulation of stakeholder

business and goes into great detail over the regulator&#39s current thinking

on the shape that decision trees will take.

Decision trees were the Government&#39s brainchild, designed to help

consumers through the pension maze and decide if stakeholder would be

suitable for them. In its discussion paper, the FSA describes decision

trees as “intended to help consumers make a choice, where they reasonably

can, without having to pay for advice”.

But far from being the user-friendly, easy-to-read guide to stakeholder

pensions that consumer groups had hoped for, it is a vast forest of

paperwork that would prove difficult to negotiate even for the most

determined professional.

It was the Government that thrust the task of creating a workable decision

tree into the hands of the FSA. The regulator has tried to cover all

aspects of pension planning in the simplest possible way and the effort

deserves some praise. But it has found that no simple decision tree can

cope with decision-making for individuals in such a complex area.

The FSA&#39s current thinking behind the process involves individuals working

their way through nine pages of text as a precursor to the actual tree.

These pages are an attempt to pre-arm the consumer with the relevant

information they need to negotiate the decision tree.

The FSA says: “It will be helpful for consumers to check certain facts,

for example, eligibility to join an employer&#39s pension scheme and

affordability, before they go through the decision tree.”

If this were not off-putting enough for the average person, those who are

employed then have to work their way through five decision trees to find

out if they should go with a stakeholder. There are three trees for the

self-employed and a further three for those not in employment.

They are then told to maybe, just maybe, consider starting a stakeholder


Scottish Mutual pensions development director Leslie Gray says: “I have my

reservations over the nine pages of introductory text. This will turn

people off and many will not get as far as the decision trees themselves.

Someone sent all this when they request stakeholder information will not

get too far into it.

“After they have finished, there is still an element of doubt for the

consumer as to what to do as it ends with &#39consider starting a


The FSA can perhaps be forgiven as it was presented with a no-win

situation by the Government, which naively believed the simplicity of its

flagship stakeholder would not warrant the need for advice.

The FSA has now conceded it must go some way to address the issues of the

minimum income guarantee and contracting out.

Scottish Equitable pensions development manager Steven Cameron says: “We

believed that there would be two possible outcomes to decision trees. We

are pleased that the FSA has avoided the first route, which was a

simple-to-use tree. By definition, this would be short and not cover all

the issues, leading people to be misled by the omissions.

“The alternative was to cover all the issues and we are pleased it has

chosen this route. The FSA was faced with a dichotomy and it has gone for

the sensible option but, by doing so, it has created something most men and

women in the street will run from.”

Decision trees, p36


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