The FSA exceeded its remit when banning consultancy charging where it reduces workers’ auto enrolment contributions below the minimum but Treasury backing for the move means it is unlikely to be overturned, Toby Strauss, chief executive, Scottish Widows told delegates at the Corporate Adviser summit on Friday.
Strauss said: “The FSA may have gone beyond its remit in setting out their guidance but it has Treasury backing, so I expect it is here to stay unless someone takes them to judicial review. We’re not going to, I don’t know about you.”
He suggested that a possible solution would be for consultancy charging to be applied to higher paid employees’contributions only, which could cross subsidise advice given for transient and lower paid workers.
Strauss told delegates that the pensions market required a two tier solution to cater for the polarisation between workers who are already engaged with their company pensions and the millions of low paid, transient workers who require a low cost, easy access option, with lifestyle investment strategies and flat AMCs.
Strauss also said his organisation was looking at ways for pension savers to lock in gains, as a form of defined ambition DC plan, although he stressed that the pensions industry would need ‘safe harbour’ status to protect providers from future litigation from potentially disgruntled members. He said some employers were looking at defined ambition for higher paid employees .
Defined ambition strategies allow individuals to lock in pension gains at various stages in their career and to bank it, to reduce savers’ fear of losing everything.
Strauss said: “If we can eliminate the tail risk, it will encourage people enormously, but we need a degree of safe harbour. I like defined ambition but there is a problem if people move job, for those with small pots and the guarantees are expensive for older people.”
Charles Cotton, CIPD research and policy adviser, said there might be a shift back to some form of risk sharing, but that employers needed to know they would “not be loaded with a disproportionate amount of the risk.”
Steve Herbert, Jelf head of benefits strategy, said there was an issue with transient workers because there was little incentive for employers to look after their pension needs.
Speaking from the floor, David Harris of Tor Financial said there was no interest from employers to take on more risk at a time when jobs were being exported to the Far East.
Cotton said “transient employees could be your problem if transient workers return to your organisation at a later date or if another employer’s transient workers come to you. The challenge is to make pensions a business tool for employers, rather than a cost.”