There is no question that the group pension market is a world away from the wealth management arena that is the principal target of the RDR. Anyone can advise companies on employee pension schemes, this is not a field that is regulated by the FSA. Bringing in any regulation at all should be done with extreme care, so the idea of foisting the entire burden of the RDR as written for individual business on the corporate pension market is horrific to advisers working in the field.
Consumers need regulations to protect them in the individual market but it is a long-standing principle in the corporate market that a lighter touch can be applied because of the employer contribution.
Yet regulatory contradictions abound when it comes to corporate pensions. There is no such thing as a group personal pension in regulatory terms, it is a group of personal pensions. Technically, the employees are the clients, yet in many cases they have never dealt with the adviser or even know its name. Corporate pensions are business to business arrangements, which is why consumer regulation feels uncomfortable, yet there are clearly consumers involved, which is why the FSA feels it has to do something.
The argument that banning commission will reduce saving is stronger in the corporate market. Many employers do not want to pay a fee and there is a real risk that they will shy away from GPPs altogether if they are required to do so.
This is bad news for providers and many employees who will probably end up with poorer contribution rates and arguably worse service but it is good news for the Personal Accounts Delivery Authority. The arrival of personal accounts will probably be as crucial to the fate of the corporate pension advice sector as the RDR. Advisers may find themselves having to justify why the corporate scheme they have put in place offers a better outcome than personal accounts. If adviser charging requires all commission paid to be shown coming out of contributions, they may struggle to recommend them.
Firms could get round this by taking all the charge out of the employer’s contributions but this could lead to interesting developments in active member discounts when staff move on.
The FSA has mooted whether it should only require adviser charging where firms advise employees. It admits this could inadvertently incentivise firms to stop advising employees, yet the alternative it seems to be looking at is requiring adviser charging whether or not firms advise employees. This seems like an admission that it could incentivise firms to stop offering pensions which would be a disaster.
John Greenwood is editor of Corporate Adviser