Emma Ann Hughes  

Pension advice regulation must move with the times

Emma Ann Hughes

Emma Ann Hughes

Given how swiftly the world evolves, it is vital that regulation keeps pace.

As February kicked off, the Financial Conduct Authority issued a discussion paper inviting industry feedback on aspects of the non-workplace pensions market.

The regulator is seeking views on non-workplace pensions, including the stakeholder pension, which by law is capped at an annual management charge of 1.5 per cent a year for the first 10 years and 1 per cent thereafter.

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The watchdog stated in the paper the charge caps may no longer be relevant, considering similar workplace pensions under auto-enrolment have been capped at a lower rate of 0.75 per cent.

It is also minded to tinker with a requirement on advisers to effectively benchmark their pension recommendations against the "advantageous" terms available under stakeholder pensions (the former RU64 rule).

The FCA stated: "For a period of time, consumers benefited from lower prices because of stakeholder pensions and the RU64 rule.

"We are concerned that this may no longer be the case as more competitive products may have emerged outside the stakeholder pension structure."

Providers and advisers were right to swiftly applaud a rethink of this rule.

Fiona Tait, technical director at Intelligent Pensions, said: "The rule, where you have to consider stakeholder pensions doesn't seem to be particularly relevant now.

"We now have a Sipp market developing in two areas, bespoke and streamlined. They will find stakeholder pensions reducing and Sipp sales increasing."

In 2018 this rule really is the equivalent of Amazon being forced to let you know the cost of a VCR when you go online and try to buy a Smart TV.

But the reason behind the rule being introduced was a good one.

By having to flag the availability of what was then the lowest cost widely available pension on the market, advisers had to justify why a pricier recommendation was the right one for the client.

It makes sense to amend this rule to insisting advisers just have to flag the range of charges attached to similar pension products.

What other rules do you think the FCA still has, in regards to advice, that are no longer fit for purpose in 2018?