Over the past decade there has been a lot of debate regarding best practice in delivering solutions to customers. I can’t help thinking that sometimes what gets in the way of delivering more valued services to our customers is the way that business models are often shaped around particular methods of delivery.
This is readily visible in the debate around best practice for the delivery of DC communications and disclosure. The current disclosure regimes for personal pensions, stakeholder and trust-based DC have evolved independently of each other while the market has moved on.
The original concept was that members of a personal pension would receive individual advice, therefore the appropriate regulator for that relationship was the FSA, and thus the RU64 rule, charging cap and suitability requirements for individually advised cases were simply lifted across into the contract-based DC environment. The DWP realised that there was still a significant advantage in allowing information to be freely distributed in the workplace, especially where individual advice was not being provided, and issued guidance for employers together with exemptions under FSMA.
During all of this time, trust-based occupational schemes have continued to auto-enrol employees and distribute information to members without the need for specific exemptions. The relationship between the sponsoring employer and adviser has been generally recognised as a consulting relationship and not one which requires staff authorised to provide individual advice to members of the scheme.
This overlap of responsibility between FSA, DWP and TPR is recognised as a potential hindrance to more effective regulation by both the regulators themselves and external commentators. Thus the memorandum of understanding between the three, which was signed while James Purnell was at the DWP helm, was a welcome recognition of the need for the three entities to work more closely.
Which brings me on to the opportunity that RDR currently presents to help resolve some of these inconsistencies. Going forward it remains to be seen whether personal accounts will seek to add to the regulatory variants but for the time being let’s assume it will operate under the same regime and requirements as any other trust-based occupational scheme.
We also have different disclosure requirements regarding the cost of advice, with members receiving full disclosure of all costs under contract-based schemes and partial or optional disclosure under trust-based. And the role of the employer as information provider, and the capacity to auto enrol differ between trust- and contract-based.
The negotiation of cost and structure takes place with the employer and to all intents and purpose, until the scheme is established, the role of the employer will be little different. The Retail Distribution Review’s latest consultation paper recognises this and proposes the concept of ‘arranger charging’.
This would recognise the role of the employer in negotiating terms and costs on behalf of the membership of a contract-based scheme and would mean those costs would be disclosed to the employer in full and matched from the premiums paid over time, which is most a return to the non-indemnity environment which prevailed on group pensions prior to personal pensions.
Would this activity need to be carried out by registered individuals? This is not clear. Where engagement with the employer is the only activity there is a good argument for pensions professionals not to need to be authorised to provide individual advice.
Clearly where individual advice is either required or given then the situation is different. However, in an environment where any pension scheme which is not a personal account will have an employer contribution in excess of 3 per cent it is easy to make the case that the employer contribution will cover the advice charge, so whether individual disclosure will actually contribute much to the advice process is the relevant question here.
Axa is fully supportive of the move towards a clear and transparent articulation of the advice cost. But it needs to add value where it is done.
In the case of group personal pensions the concept of disclosure to the employer where individual advice is not being given provides a real opportunity to harmonise the disclosure regimes for DC provision, remove some of the non- productive differences, and streamline the quantity of information that members receive.