The FSA is understood to be giving GPP sales post-stakeholder a marked degree of scrutiny, which will come as no surprise to those who have watched the development of stakeholder.
The FSA is apparently concerned that even after the highly desirable, price-capped, flexible and transparent stakeholder pensions have been available for seven months, IFAs are continuing to sell group personal pensions.
It is understood that there are particular concerns surrounding GPPs which charge over 1 per cent but IFAs say the level of advice and admin needed for a GPP cannot fit within a 1 per cent charge.
Scottish Equitable pensions development director Stewart Ritchie says: “It is perfectly legitimate for IFAs to sell GPPs instead of stakeholder, even if it does involve a charge above 1 per cent, although clearly the IFA has to address questions as to why that contract should be chosen.”
While Lord Rooker, the pensions minister before Ian McCartney, had said the exemption from stakeholder of companies offering GPPs with 3 per cent employer contributions would be reviewed, this is the first indication that the FSA is taking a closer look at GPPs.
The FSA says monitoring stakeholder sales compared with GPPs is part of its ongoing regulatory procedures. It claims that this kind of monitoring is standard practice for new products.
A senior industry source told MM that the FSA has said using the excuse that with-profits is not available under stakeholder terms is not an adequate excuse for recommending a GPP over 1 per cent.
The flexibility of GPPs and the availability of with-profits, however, are seen as one of their main advantages ahead of stakeholder.
Ritchie says: “The positive answers as to why a GPP will be recommended are likely to centre around the individual advice given. GPPs can also offer wider investment range and access to fullblooded with-profits.”
Roberts Clark director Ashley Clark says: “The only plus point for GPPs is that waiver of premium is cheaper compared with stakeholder where this and life cover has to be priced outside the contract. So with this flexibility, it is sometimes understandable why people are selling it.”
Although some IFAs have questioned the FSA's move, saying it is often best advice to recommend a GPP above a stakeholder, there are a number of IFAs who believe that some GPP recommendations are swayed by thoughts of the ringing cash register.
Hargreaves Lansdown ret-irement planning manager Danny Cox says: “We do not believe that there is any reason why GPP contracts over 1 per cent should be sold unless it offers external fund links. In most medium-sized schemes, advice can be priced in within 1 per cent.”
Informed Choice managing director Nick Bamford says: “If the FSA does fear IFAs are selling GPPs because charges and commission are higher, then it is justifiable to consider reviewing it.”
Clark says: “The regulator is right to be cynical if IFAs are selling GPPs for more commission. A lot of IFAs would look to GPPs because the remuneration is better and the FSA is right to be cynical.”
Many IFAs are not writing GPP business above 1 per cent anyway. The industry wants the regulator to take note of what is becoming standard practice – that many GPPs are sold within the charging cap. And many life offices such as Standard Life and Norwich Union have repriced their contracts to stakeholder levels anyway.
Bamford says: “The FSA should recognise that group stakeholder and GPPs are fundamentally the same thing. There are a few technical differences but they are really variations on a theme. The regulator should also take on board that GPPs are charged a la stakeholder. We, for example, will not set up a GPP if the effect of charges is greater than stakeholder.”
Richard Jacobs Pensions & Trustee Services director Rich-ard Jacobs says: “I cannot see a way of justifying GPP sales above 1 per cent. If a provider will not offer me those charges, I will take my business to someone who does. The value-for-money stakeholder is just so much better.
“If you are selling a GPP on full commission, it will take another 1 per cent off your client's reduction in yield. I do not know what any IFA is doing selling a contract at a higher charge than stakeholder unless there is a significant advantage other than for higher commission. The ironic thing is that there is actually a lot of commission currently available on stakeholder anyway.”
This is clearly an issue of contention for a review-fatigued industry and many IFAs hope the FSA does not over-react.
Bamford says: “I hope this does not turn into something of the scale of the pension transfer review. This could be the classic regulatory over-reaction to the problem rather than just finding out what IFAs are doing.
“The Government sees stakeholder failing and so is banging the regulator over the head to ask why it is not working. The regulator then bangs IFAs on the head, saying there must be something wrong. That seems to be the way the food chain works around here.”