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Group dynamics

Here we are eight months down the line from the FSA’s November 2008 feedback statement and we are little closer to knowing how the retail distribution review will treat workplace pensions.

The FSA’s position of puzzlement at how to make a regulatory regime designed for the individual advice market fit on top of a largely unadvised workplace pensions one remains intact although, depending which way you read the document, it may have softened on abolishing commission altogether.

But whichever way you read the smoke signals, it wants solutions from the industry by the end of the month so it can get draft rules out by the end of the year.

The consultation paper seems to want to have its cake and eat it. On the one hand, it says group pension recommendations should not fall under the new RDR rules and the introduction of adviser charging, as this would not necessarily protect employees and might drive schemes towards establishing themselves on a trust-based basis, which falls outside the FSA’s remit. Add to that the fact that it would foster a rush towards levelling down to personal accounts levels of savings and you have got the full picture. All well and good.

It adds that where group pensions are offered with individual, face-to-face advice thrown in as well, then the RDR proposals should apply in full. Fair enough.

But later on, the paper goes on to seek suggestions as to how the “intentions of adviser charging” can be brought to bear on the non-advised group market.

It is hard to see how you can impose the intentions of a regulatory regime on a sector without imposing the regime itself.

Anything that promotes the intentions of adviser charging must be done in such a way that it does not turn employers off the idea of commission over fees.

The reason for this is that commission is essential to the retirement hopes of many people working for small and medium-sized businesses in the UK. I am not the biggest fan of commission in the world but in the field of group pensions I am at a loss to find where the consumer detriment is. If my employer is giving me £2,000 towards my pension each year, charges are going to have to be pretty high before I am worse off by being a member of the scheme than not. If my employer balks at paying a fee and levels down to personal accounts the most I will receive off them is £1,350 a year.

To be fair to the FSA, it seems to have got half this argument. It accepts the idea of adviser remuneration coming out of contributions while unable to use the word commission. The fear is that the disclosure that goes along with the process is so complicated that it puts the employer off altogether.

You could reasonably ask why bother with all this at all if there is nothing wrong with the system today?

An argument has been put forward that if you do not cover GPPs, then individuals will circumvent the rules by clubb-ing together in faux GPPs. The FSA seems to accept this is the reason why it has to legislate for group pensions but I do not buy this argument at all.

It should be easy enough to simply say that the rules on adviser charging do not apply to workplace schemes. If there is not an employer/employee relationship, then the RDR kicks in. If there is, it does not.

This would be easy enough to police and no IFA would risk enforcement action simply to get around the new rules.

John Greenwood is editor of Corporate AdviserMoney Marketing

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