RDR read-across could damage UK pension market

The FSA will not be able to simply read-across its adviser charging rules to the group personal pension (GPP) market, according to industry experts.

In its latest RDR consultation paper, the FSA revealed it would consult on the potential for introducing similar remuneration rules in the group market as it has proposed for individual advice.

However, insurers say it may prove impossible to transfer the adviser charging model to GPP sales, and some worry it could do further damage to the UK’s savings ratio.

In last week’s paper, the FSA says: “If we do not apply the principles behind Adviser Charging to unadvised GPP business, we may run the risk that our proposed rules on Adviser Charging could be circumvented in this market.”

The FSA has asked the industry to respond with its thoughts on how adviser charging might work in the GPP market, with a view to launching a full consultation later this year.

However, industry professionals are worried a blanket implementation of the adviser charging system could result in fewer people saving for their retirement.

Richard Howells, intermediary sales director at Zurich, is worried a similar factoring ban could make it impossible to advisers to do business in the group space.

“Most of the work involved in setting up a GPP comes early on in the process, while ongoing service is fairly light,” he says.

“I think adviser charging will ruin that market, at a time when we really should be making it easier for people to save money.”

Danny Wynn, director of new distribution at Legal & General, says the regulator will need to think carefully about how adviser charging would work for corporate clients.

“It would be very difficult to have a straight read-across, and with the introduction of personal accounts and auto-enrolment making this market increasingly complex, there’s no way this could be implemented at the same time as the RDR,” he adds.

However, Martin Palmer, head of corporate pensions marketing at Friends Provident, says adviser charging may not be very different from current remuneration practices in the group market.

“At the moment the intermediary takes a commission, which is then deducted from the employees’ plans through their charges,” he explains.

“With adviser charging the employer could supply the up-front fee, and then have the costs deducted from the pension plan."

Palmer believes the most difficult problem for the FSA to deal with is the implications of legacy business.

“The FSA needs to consider existing schemes, as this is a very saturated market with many employers already offering group schemes.  If adviser charging is to have a real impact, it will need to have some effect on legacy business.”

The FSA is inviting responses on introducing adviser charging for GPPs, with a closing date of 31 July, and expects to launch a full consultation before the end of 2009.