Cracking some urban myths
The definition of a myth outlines an association with legend, fiction, fairytale, folklore, fable, confusing data, personal desire and urban legend.
What has this got to do with pensions? A great deal if you have been monitoring recent press comment surrounding self-invested personal pensions.
It seems we are in danger of a mythical world forming. In this world it seems some competitors are concerned with the increased popularity of Sipps. Being a mythical world the reaction to this concern is to introduce messages and stories that have more than a hint of fable and confusing data. I am never one to look to spoil a good story. However, often it is better that fables are left solely for use when tucking the kids in at night. Let us look at some of the issues currently under discussion and look to separate any myths from reality.
Myth? Great care is needed when using Sipps because they are currently the subject of a FSA thematic review.
It goes without question that great care is needed when using any financial services product. However, judging by the number of calls I receive on this issue advisers are confused and they have good reason.
Thematic reviews are part and parcel of the work carried out by the FSA. One of the current reviews involves pension transfer advice and transfers to Sipps is included as part of this. The original scope focused on transfers to Sipps. Exploratory work carried out by the FSA in 2007 identified significant growth in transfers to personal pensions more generally. From this, the decision was taken to widen the review to also include assessing the quality of advice on transfers to all forms of personal pensions.
To quote the FSA website on pension transfer advice, including Sipps:
"We set up a project to assess the risk of poor quality advice when transferring into Sipps. The project now includes transfers into personal pension plans, including Sipps. The intended outcomes of this project are that consumers are given suitable advice when they are thinking about transferring into personal pension plans and Sipps, and firms consider their treating customers fairly obligations when designing and marketing personal pension plans and Sipps."
The FSA have made it clear that the emphasis is on ensuring that advice on transfers is suitable and meets the client's individual requirements.
• Needs analysis.
• Analysis of costs, penalties involved in any transfer and the benefits.
• Documentation explaining how the new arrangement satisfies the at least as suitable as stakeholder test.
• Any investment and on-going advice.
We understand that the review is also looking at how providers incentivise advisers to recommend their products. This will include an analysis of marketing literature, adviser remuneration and the role of broker consultants. To suggest that this review is now focusing solely on Sipps is selective use of the actual scope and clearly wide of the mark.