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