Warning on FSA group personal pension charging principles

A one-size-fits-all approach to adviser charging principles for group personal pensions must be avoided.

In its response to a consultation on issues surrounding GPPs in the FSA's Retail Distribution Review, the Society of Pension Consultants (SPC) says the freedom of employers to agree the structure of GPP arrangements was vital - and would promote competition as an effective self-regulator in the corporate market.

The trade body adds charging on a member-by-member basis would be "inappropriate".

SPC president Duncan Howorth says: "Services vary materially between clients and therefore a ‘one size fits all approach' is not appropriate.

"Advisers and clients should remain free to agree charges between each other."

He adds: "The SPC argues it would not be appropriate to agree adviser charging on a member-by-member basis, although it recognises the need for remuneration to reflect the level and range of services - for example whether member advice is or isn't provided."

Insurer Aegon agrees, noting the GPP market was much more varied than the individual market with different strengths and challenges.

It says it believes a flexible, tailored and pragmatic approach to introducing RDR style changes is required and argues arranger charging should be agreed at employer level for employer advisory services.

It adds that, where full advice is provided to members, there should be a form of adviser charging but with employers able to agree a standard tariff for this with the adviser to apply across the whole scheme.

Schemes put in place before the RDR changes should be able to continue to remunerate advisers on current bases, including for new entrants and increments, the insurer says.

Aegon head of business regulation Steven Cameron says charges for advisory services should be spread over the first few years of scheme membership in order to avoid nil allocation periods.

"Employers come in all shapes and sizes with different advice needs so a one size solution does not, and never will, fit all," he says. "We're urging the FSA to apply RDR measures flexibly and pragmatically."

However Friends Provident says adviser charging should apply where individual advice is given on group personal pensions, and also calls for principles-based charging to apply to non-advised GPP business.

The provider suggests "member fees" as the most effective way to meet the cost of advice - saying it believes this would ensure the set up costs and ongoing management costs are split fairly across the different members within the scheme.

Head of corporate pensions marketing Martin Palmer says: "The fundamental problem of applying adviser charging to corporate pensions is matching the overall adviser related scheme set up costs to members in as fair a way as possible.

"We believe member fees offer a sound solution to this problem. If implemented correctly, either the employer or the member should be able to pay the member fee; for example, the employer may wish to meet the cost of setting up the scheme with the member paying all ongoing charges."

Palmer continues: "Flexible charging options for these member fees should be considered.

"We recommend the member fee could be a fixed amount or a proportion of the contribution amount and/or the value of the fund, which we believe will make the process smoother."

This comes after the FSA asked if its adviser charging principles should be applied where individual advice is given on GPPs and whether the principles should be applied to non-advised GPP business.

The regulator says the predominant market model was for GPPs to be promoted to individual employees without personal advice - sometimes with commission being paid by the product provider that assisted the employer in choosing the scheme.

But it says it fears this may not comply with its adviser charging principles, which aim to make sure investors know up-front how much advice is going to cost and how they will pay for it.

The FSA says one suggestion it has received was that it should introduce the concept of "arranger charging" for GPPs, so that where advice is not given to employees, any intermediary remuneration would be negotiated between the intermediary and the employer - even if it was ultimately obtained from contributions or scheme funds.

It says this could be disclosed to potential GPP members alongside the usual key features document - but noted it could be complicated to work.

Finally, it says it intends to publish a further consultation with draft GPP rules later this year.