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Yet another review

News of another Government review of financial services should come as no surprise.

In fact, with reviews of disclosure, polarisation, competition, investment, endowments, advertising, prudential regulation, product regulation, with-profits and the Inland Revenue review on the tax treatment of occupational pensions all under way, it is getting hard to think what it could review next.

However, the latest review of private pension legislation could be the start of something more encouraging. For the first time, a review has been set up, headed by Alan Pickering, to simplify the regulatory framework consistent with maintaining the protection of sch-eme members.

The call for evidence for this review makes for refreshing reading. It asks:

What areas of regulation do you regard as unnecessary?

Where do you think there is duplication?

What elements are particularly and unnecessarily expensive?

What elements are inappropriately time consuming?

Are there consumer interests that the current regula-tory regime fails to address adequately?

Which elements of the regulatory regime do schemes or employers, pension providers, consumers and others complain about most?

Are there areas which bear heavily on very small schemes?

This should be a perfect opportunity to address several major issues, including:

Regulation of disclosure by several different bodies. For example, the FSA makes the rules over the initial disclosure of information to scheme members and selling practices but annual statements to scheme members are governed by regulations framed by the Department of Work and Pensions. If scheme contributions are not paid in a timely manner by employers, providers have to disclose this to scheme members under Opra rules.

The contracting-out system – which is so complex not even experts know when people should contract in or out. Regulations on the preservation and revaluation of benefits for scheme members in contracted out schemes are very complicated. The subsequent transfer of these benefits between schemes adds to the complexity and cost.

The question is, does the industry have the imagination to respond to the challenge?

In the past, it has been long on complaints about the burden of regulation but very short on practical suggestions for reducing it.

In its pension Green Paper, the Government asked for ideas about how to lessen the burden of conduct of business regulation for stakeholder pensions. The conduct-of-business regime it ended up with – including the use of decision trees – was even more cumbersome than the one that had existed before.

The Oliver Wyman & Company study on the insurance market commissioned by the ABI, which was published in September 2001, contains some interesting conclusions about the future of regulation for the UK savings and investment industry.

It states that the savings gap is £27bn and growing and that reform of regulation is needed to increase savings. Advice is needed as it is effective in increasing the amount saved.

Regulation has driven costs up to the point where it is increasingly uneconomic to provide advice other than to high earners and that the existing regulatory regime will increase the savings gap.

The study puts forward an alternative tiered regulatory framework with the existing standards of business conduct for higher income customers and only product regulation for lowto middle-income customers with reduced compliance and training burdens.

This idea for deregulation could carry as many problems as opportunities:

Will providers looking to operate in the whole market have to train and authorise two sets of advisers with different processes?

What happens when people move income bands – will they have to find new advisers?

Will there be an overlap with a combination of product and conduct of business regulation in the middle?

It is not a great idea but it is a new one – and has to be taken seriously.

Regulation is definitely a hot topic and in Alan Pickering&#39s review we have a great opportunity to influence the debate to ensure that we end up with a regulatory frame-work for pensions that has the right balance between effectiveness and administrative efficiency and reduces the savings gap.

If the industry wants to reduce regulation of pensions and investments, it has to act now – the time has come to “put up or shut up”.


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