Opinion  

Devil is emerging from the detail on pension charge cap

Donia O’Loughlin

Earlier this week, the Regulatory Policy Committee announced government estimates of the potential effects of introducing a cap on pension charges for schemes under auto-enrolment rules are “not fit for purpose”.

According to the committee the proposals do not adequately demonstrate why a cap on charges would have “a zero net impact on the pensions industry”, as was claimed in the government consultation.

This follows on from previous debates, with pension experts warning that a reduction in the cap to 0.5 per cent, which is gaining industry support, would expose the charging structure of the National Employment Savings Trust, which could be seen as “expensive” and “a rip-off pension”.

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The Pensions Regulator also announced this week that a looming ‘capacity crunch’ among pension providers could begin to surface in a significant way in the opening months of 2014, far earlier than current expectations that providers may begin closing doors in 2015 and beyond.

While there is no doubt that auto-enrolment is a positive move, with opt-out rates far lower than expected at around 10 per cent, the devil is in the detail, as these stories show.

A FTAdviser commentator said on the latter story: “...the framework proposed is proposterous. If this works I will eat my hat, the logistics and complexity of it all make it unworkable in my eyes.”

Perhaps the government should be working on removing the complexity, as opposed to adding further unnecessary layers.

Credit where it is due

The Financial Conduct Authority should be applauded for finally giving a little clarity to the issue of consumer credit, however the real elephant in the room is still who needs one.

This week the regulator did not announce which financial advisers will need one, but it did amend the fee structure so that smaller firms are not hit with fees of up to £15,000 for a two-year licence. It was an extraordinary move in some respects, as the proposed structure is still subject to an active consultation itself.

The new structure will include an overlay based on a firm’s income. The previous categorisation was based solely on the complexity of the firms activities.

Last month, the FCA’s homepage had a new addition, which urged businesses to register for interim permission for a consumer credit licence before its generous offer of a reduced fee lapsed at the end of November.

The problem was, and still is, that advisers do not know if they need a licence or not.

While the FCA seems to have finally bowed to pressure, it has once again missed the point. It needs to inform advisers whether they need a consumer credit licence or not. As the Association of Professional Financial Advisers said earlier this month, it’s too costly to get one ‘just in case’.

I doubt this will be announced while the consultation is ongoing so advisers will have to wait with bated breath until the guidance is eventually published.