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Robert Reid: A month of reckoning for pension providers

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Never mind the day of reckoning; is this not the month of reckoning for life and pension providers?

This month has seen the Budget pensions income changes, followed by the DWP’s pension charge cap and, finally, news of the FCA’s planned attack on backbook cross-subsidies.

The Budget delivered a genuine boost to pensions, in particular, and saving in general. The question unanswered is the cost of the flexibility. If people can empty an account at a moment’s notice, what do you charge as a provider? It would be ironic if new charges arose when charge control is such a key theme for the pensions minister.

As to the confusion over whether the Government wants to offer advice, guidance or help, if that is not a shambles borne out of soundbite politics I do not know what is. 

The industry seems to be assuming that face-to-face advice is the only way to provide this service but we need to start to think outside the box and use affinity groups as a point of access at a more acceptable cost.

The cap on charges is something I have previously suggested is inevitable and given the pressure from those campaigning for this change among consumer groups and the press, no one should be surprised that it has arrived. I believe its impact will be far more severe than expected, not from clawback but for those providers which were far too ready to accommodate all-comers and provided customised offerings at the drop of a hat.

On reading the paper that accompanied the charge cap announcement, I am drawn to the section on governance which says schemes will need an independent review of performance and to demonstrate value for money. It is unclear  if a major provider needs that level of additional monitoring or if it has to be at employer level.

It strikes me that if all DC schemes need to implement this, older schemes will gradually be replaced. But that could be accelerated under pressure from scheme members.

The removal of commission will present a problem for providers which cannot secure agreement for fees at a level which delivers profit. Companies which have sold no-costs group schemes may struggle to move employers to specific fees.

Now to the finale, the FCA’s review of legacy business. Some providers may face the loss of significant cross-subsidies as they are unable to apply the penalties or continue the current charging structures which generate their income. If these plans change, advisers could also lose trail, so the impact may be shared but will, in my opinion, be skewed towards the providers.

Just as the annuity changes announced in the Budget led to share price falls, once this all takes effect a significant correction will need to be made when the legacy business loses its shackles.

The past month has reminded us that nothing is forever and we need to be able to think strategically. With changes like these, some strategic thinking will not go amiss.

Robert Reid is managing director of Syndaxi Financial Planners

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. william gillies 2nd June 2014 at 9:28 pm

    i would love to know if there is a pension company that can transfer my £45.500 pension to them but not charge the earth i was just given a price of 5% charge from portal financial which was going to cost me £2489 plus extra charge for setting up this is daylight robbery they curse the banks but pension companys should be on the next hit list grateful for any advice thanks william

  2. Hugo Cannon, IFA 12th June 2014 at 11:39 am

    The only people who will transfer your £45,500 for less are a discount online broker, or a financial adviser. I’m not sure what a discount broker will charge (probably nothing) – but it’ll be without advice and you should only attempt this if you know what you are doing.

    As for IFAs – find one using unbiased.co.uk (remember to uncheck the “Show Sponsored Ads Only” to make it actually “Unbiased”). You should be able to negotiate fees, but I doubt you’ll get a transfer done for much less than £1,000 – simply due to the amount of time it takes to do a transfer suitably and compliantly if there is advise involved.

  3. @williamgilllies

    You tell me which provider you wish to transfer to, which fund(s) you wish to invest in, whether you wish to auto rebalance, phase your investment , commence drawdown, nominate beneficiaries, etc.

    Execution only, £450.

    What a bargain.

  4. @Simon Kershaw

    You must be mad, there is no such thing as execution only, especially with pension transfers.

    I suggest adding £1,825 to cover your liability to the FOS. At least.

  5. @Sascha Claus

    I believe in individual freedom of choice. Assuming that this chap is capable of entering into a contract for a service, with all the legal niceties signed for on every page, who am I to deny him his legal rights.

    To be fair, in my 25 years in this business I have only ever transacted a handful of ex-o cases, each of which was correct on it’s own merits.

    The real number should be £1950.

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