The FCA announced today (July 30), as part of its research into competition in the non-workplace pensions market, that it will consider collecting and publishing all fees charged by self-invested pension providers (Sipp) and other non-workplace pension schemes.
The regulator said the information would be collected and collated by an independent body, which would most likely be the FCA.
The FCA would then aggregate this information into a single dataset and make it publicly available, making it easier for individuals to compare providers and value for money.
Non-workplace pensions are products such as individual personal pensions, stakeholder personal pensions, and self-invested personal pensions (Sipps).
They also include free standing additional voluntary contributions (FSAVCs), s32 buyouts, and retirement annuities.
Currently there is little switching between these type of pension products as consumers do not understand whether or not they are getting value for money with their pension pot and investments, the FCA said.
But advisers have raised concerns that a focus on charges would ignore factors such as investment choices and quality, with consumers likely to pick the cheapest provider without taking other issues into account.
Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, said: “There are quirks in charging so it’d be hard to compare like-for-like without an IFA tailoring the charges for each individual, or at worst, some providers 'game' the system to appear cheapest.
“The focus will be on 'charges' like a comparison website, hence factors such as the quality and features of a product, customer service and financial stability of a provider would likely be ignored."
He added: “In addition, the danger is that it’s hard to include fund charges unless each provider provides a 'default' fund, which may not actually reflect the real charges a client may pay.
"For example, a provider could simply use a cash fund paying near 0 per cent charges, but the client may incorrectly think it’s the cheapest, and then end up in an expensive fund that they’ve chosen.”
Similarly, Greg Kingston, group communications director at Sipp provider Curtis Banks, said: “My main concern is that an FCA-driven price comparison table will try and compare fundamentally different products designed for different purposes on price alone.
“That would risk artificially distorting markets, plus expose the regulator to risks of consumers making decisions upon the data that they publish.”
Meanwhile, both providers and advisers suggested that the regulator was not the right body for the job.
Mr Chan said: ”Unfortunately, whilst I respect the FCA’s role, I have little faith in them doing this competently if they cannot even get their FCA register done properly and making it user friendly.”
James Jones-Tinsley, Sipp technical specialist at Barnett Waddingham, said: “The FCA should stick to being a regulator and focus on the functioning of the market and encouraging competition and innovation, rather than acting as yet another data provider.
He said the Money & Pensions Service (Maps) could develop a data-providing tool instead, or the likes of Money Supermarket or Go Compare.
He added: "They don’t get involved, because it’s currently too complicated for them. Make it simpler, and they might. And that would encourage consumer engagement."
Alastair Conway, chief executive at James Hay, said that the overseer of this service must remain impartial and at arms length from the non-workplace pension industry.
Mr Conway said: “It’s important that the disclosure is presented in an impartial way, as complex services and offerings could mean more involved fees, and if not positioned correctly could see comparing of apples and oranges.”
But Tim Morris, independent financial adviser at Russell & Co, said as long as the regulator comes up with a process which applies to all providers it will be helpful for consumers.
Mr Morris said: “I do think the Sipp market is in need of additional regulation. Policing these more closely should ensure less clients end up with illiquid unregulated investments which Sipps can hold.
“If the FCA can create a clear and standardised process for all providers to follow, that should prove beneficial.”
In its paper, the FCA found “highly complex” charges across the industry were driving down consumer engagement, resulting in little switching between pension providers.
Due to this, the FCA proposed that providers should disclose clearer information on the total charges incurred by the consumer and their impact at the point of opening a non-workplace pension as well as on an ongoing basis.
But Tom Selby, senior analyst at AJ Bell, said the “highly complex” charges will make it difficult to compare products for advisers.
Mr Selby said: “Improving comparability of charges, a key component of value for money, is a sensible aim but this is difficult in a market where charging structures vary.
“The FCA itself has previously suggested revenue earned per £ of administration is a good proxy for value for money, and requiring all providers to publish this figure on an annual basis would be a good starting point.”
He added: “Whatever method the FCA chooses, provided it is an accurate reflection of the prices paid by end investors then this would be a positive development.”
amy.austin@ft.com
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