‘Dodgy dossier’ may be going too far, but the FSA’s latest CP on corporate pensions seems sexed up.
Having survived 2008 and 2009, we should be able to look at the challenges that the new year will bring with a battlehardened determination.
The calendar has never seemed busier. A general election at some point in the spring, the ban on commission for corporate pensions due on the statute book by the autumn, a review of the retirement age and more detail on personal accounts and exempt schemes. From the perspective of both the consultant and the journalist there is more than enough to keep one busy.
December’s Retail Distribution Review announcement was not the best Christmas present those operating on a commission basis will ever receive. If implemented as it stands, there is no doubt that this will lead to some advisers exiting the industry. This would be a shame, because although the FSA and DWP are right that there is a market failure in the provision of group pensions to lower income individuals – many providers will not even bother to quote for small, low salary schemes – it doesn’t make clear how this affects individuals.
The FSA paper does show quite clearly that commission has distorted the market, but what it has not done is demonstrate that there is a risk to consumers as a result of this bias. Nor does it elaborate on the risk to consumers of providers not being able to distribute to employers who will refuse to pay a fee. The Government will argue that this does not matter because there is personal accounts to pick up the pieces, but that is only for band earnings, and for 8 per cent of salary at that.
I am also bemused at the FSA’s logic that one of its reasons for banning commission is because the current model is not sustainable. Surely that is for market forces to determine – not a civil servant in Canary Wharf.
I am yet to detect any sense of rebellion or resistance to these changes. The ABI supports the abolition of commission, and so do all but those providers still offering it. The rejection of factoring, on the other hand, has met more resistance.
I am yet to be convinced that an industry-wide factoring arrangement would be any more of an intervention into the free market than a stakeholder price cap. Part of the problem is that the industry has become so focused on level charges. The idea of 5 per cent of contributions over the first five years sounds horrendous to anyone used to 1 or 0.5 per cent. But the idea that such a model could work out cheaper over the life of a pension is yet to gain ground.
We have an election between now and the rules being crystallised. But I do not see any signs of resistance. Happy New Year.
John Greenwood, Editor