The retail distribution review could put workplace pensions at risk.
At a round table meeting hosted by Pointon York Sipp Solutions last week, commentators met to discuss RDR issues and concluded that workplace pensions were in grave danger of being wiped out if primary advice, generic advice and professionals financial planners are the only three categories to exist in the market in the future.
PYSS chairman Geoffrey Pointon said: “Who is the regulator acting for? Is it trying to protect the banks, the life companies or the small IFAs? Or is it just for the consumer?”
Reynolds Porter Chamberlain pensions solicitor Jonathan Davies thinks the FSA is not concerned with smaller IFAs and would prefer to regulate the banks.
He said: “I think the problem is the regulator has conflicting principles and it cannot adhere to its four principles without mixing its messages. The RDR is doing a couple of things they have tried and failed to do before. John Tiner says he was persuaded to back down on the issues of commission and the use of the IFA label but he said in his final speech that he regrets this.”
Davies said he does not think any form of pension product could fall within the category of a simple product and so pensions would be limited to being sold through professional financial planners or through generic advice.
As professional financial planners will be concentrating on high-net-worth individuals, both Pointon and Davies expressed concerns over who would be servicing the middle market workplace pension schemes.
Davies said: “There is a concept that the saviour to all problems is generic advice. What caused the endowment problems was not specific IFA-led advice. It was the banks. One can sort of see generic advice as a disaster waiting to happen.”
Doubt was also expressed over the future of group personal pensions, with Davies saying he does not think they will survive the introduction of personal accounts because they do not have the flexibility to deal with the changes people go through in their lives.
Pointon said that trade unions are no longer getting engaged in the workplace pension debate.
Pointon said: “The trade union members’ final-salary schemes are good and they are not going to give them up. This is causing a lack of willingness to get engaged in the workplace pension debate because they do not want to risk losing their generous pensions.”
Davies said: “As GPPs are made to look less attractive and more difficult, employers will be put off using them and employees will have no pension provision. The biggest thing that inspires people to save into a pension is if their employer matches their contributions and if this wanes then they will become less attractive to employees.”
Pointon pointed out that Clerical Medical is one provider that has recently closed to new group pension business blaming tightening margins and lack of profitability in the sector.
He said: “Do we think workplace pensions are going to survive the RDR? How can we protect them? The regulator has got to consider how it is going to go about doing this, otherwise large numbers of people are going to lose out.”
PYSS managing director Christine Hallett said: “If people do not know what they are getting then they will not tick the box in the workplace to get the pension because they are scared. They do not know what it means and education is key to this.”
Pointon also expressed his concerns over commission, saying that he cannot see how IFAs will survive without it because only 3 per cent of IFAs do not use any commission.
He said: “Around 75 per cent are still commission junkies and most of the rest use a combination of fee and commission. Banning commission is like taking heroin away from junkies. It would be very difficult. I think there is a danger that people are getting too hung up on the commission debate.”
Davies said he thinks IFAs will ultimately become like lawyers where people pay fees for professional advice but adds there are always people who will abuse the system.
Millennium Global Investments global economist Roger Nightingale said: “Regulation does not stop crimes. You cannot stop crim-inals. Not a single piece of regulation would have stop-ped what happened in the Maxwell case, for example.
“Shakespeare said the first thing we should do is to kill all the lawyers. I would say the second thing we should do is kill all the regulators. The majority of the RDR proposals are crazy and will punish the good IFAs and not stop the criminals.”
Referring to recent stock market volatility, Davies said this is the first time he has seen the retail financial services industry cause global economic instability.
He said: “This shows that misselling of sub-prime products can cause massive economic instability and I do not think that anyone could have predicted that six months ago.”
But Nightingale said: “I think this is not caused by sub-prime. It was caused by central banks creating a cre-dit squeeze and it came out in the sub-prime market. It is nearly always the regulators who create the problems.”