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JP Morgan says Standard Life will be hit hard by FSA pension review

JP Morgan has published a report raising doubts about Standard Life’s prospects, following Money Marketing’s leak of the FSA’s review of pension switching.

The investment firm says the FSA’s briefing on pension switching advice, which was due to be published on Tuesday but was rushed out this afternoon following the Money Marketing leak, will reduce demand for Sipps and have a big impact on Standard Life, the main player in the Sipp marketplace.

But Standard Life has hit back claiming it is fully complying with FSA regulation and that the Sipp market will remain strong despite the regulator’s review.

JP Morgan’s briefing states: “While [Standard Life] will not be exposed to the misselling costs, as these in the first instance are taken by the IFA firm, the sales are likely to suffer going forward as an estimated 80 per cent are transfers from existing pensions. They also could be liable for overstating the returns on cash funds, which have recently been a key driver of sales in 2008.”

JP Morgan says the main fund selected in Standard Life’s Sipp last year was its select property fund, which has heavily underperformed.

It says: “It is possible that advisers understated the risks in property funds for Sipp investors who are typically in their 50’s and approaching retirement.”

But Standard Life head of pensions policy John Lawson says: “These issues are minor ones. Standard Life already projects cash and cash-like investments at lower rates, at 3.25 per cent, 5 per cent and 6.75 per cent. This is a minor concern, we already comply with the FSA’s requirement here so we have nothing to worry about and I do not think Sipp sales will be knocked as a result of this report.”

Lawson adds: “Our Sipp already uses ‘Adviser Charging’ the method of paying for advice that reduces customer detriment according to last week’s RDR paper. We believe that the FSA should be more concerned about stakeholder sales given that these are attracted using excessive levels of commission – in some cases as high as 7 per cent.”

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