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's publication of the FSA's
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's
discussion paper on stakeholder.
The paper outlines the FSA's approach to the regulation of stakeholder
business and goes into great detail over the regulator's current thinking
on the shape that decision trees will take.
Decision trees were the Government's 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
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's 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's 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 'consider 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