The pensions industry is the main target of the current reviews of the financial services industry, led by Ron Sandler's work for the Treasury, which is expected to be published within the next two weeks
The current year will see several reviews of the financial services industry, many of them targeted at the pensions market in particular. Some, like the Sandler review, are expected to have more of an impact than others.
In June 2001, Ron Sandler was appointed by the Treasury to conduct a review into the long-term retail savings industry, including life assurance. Sandler will work with the FSA to meet the review's purpose, which is to identify the competitive forces and incentives that drive the retail savings industries and examine their approaches to investment.
Steven Cameron, manager of business development at Scottish Equitable, says: 'The Sandler review will look at issues across the industry, including investment advice and with-profits. Sandler seems to be promoting the idea of having simple products, which links with the FSA's recent paper on depolarisation.'
The review is expected to be published within the next two weeks.
'The review will look at regulation, advisers and their knowledge, polarisation, with-profits and many other areas,' says Cameron. 'We think Sandler might disagree with the FSA with-profits review and make additional proposals to those of the regulator. The market is expecting Sandler to be strict on with-profits but we hope he will see that such products have their place in the market.'
Owing to the Government's current focus on pensions, there are to be at least three major reviews on the subject this year ' the Pickering review on simplifying pensions, the Inland Revenue review of the tax situation for pensions and Sandler's review on retail and distribution, which will also include analysis of the pensions industry
Head of communications at Scottish Life, Alasdair Buchanan, says that while the reviews will not enforce any changes to the market, they should push providers to create a better environment for pensions. 'The present environment is difficult for pension saving and investment advice,' he says. 'Alan Pickering, the former chairman of the NAPF, was asked by Alistair Darling to conduct a review on pension structures, with the aim of finding ways to reduce the red tape and complexity of the system. At the same time, the Inland Revenue was asked to look at its tax relief and contribution system for pensions that has grown complex over the years.'
The first results of these reviews was a consultation paper called Modernising Annuities, issued in discussion with the Inland Revenue in February this year. The discussion paper gives an idea of what the two bodies have been considering and the options available to them to improve the pension situation.
Cameron says that from looking at the consultation document, we can certainly expect some changes to contracting out.
'It has also been said that there are too many types of pensions within the industry and that the red tape needs to be reduced, which will cut costs for providers,' he adds. 'Pickering might also suggest that employers make pension scheme membership compulsory, which will obviously increase pension costs for those employers.'
The Inland Revenue review is expected to simplify the tax treatments towards pensions in its forthcoming consultation paper.
Buchanan explains: 'The key element in the Inland Revenue review is that the system allows for generous tax relief on pensions. It was initially a simple system but because some people manipulate it, subsequent legislative changes have made the system more complex. The Treasury has changed the system several times to close loopholes.
'We think that there should be two tax structures, one for people not likely to manipulate the system and another for individuals that have control of elements that could allow them to do so, such as company directors.'
Though the Government has not made any commitments on a pensions green paper, there are indications, especially from the Chancellor's budget speech, that the Pickering, Inland Revenue and Sandler reviews will be looked at together.
'The Sandler review on retail and distribution seemed to be a totally separate review but in his budget speech, the Chancellor mentioned all three simplifying reviews in the same context,' says Buchanan. 'We expect the three reviews will form part of a consultation paper and subsequently a green paper released by the Government late this year.'
Looking across the wider financial services industry, the Equitable Life situation has exposed the vulnerability of consumers within the annuities industry and the FSA has ordered a report on this area from its managing director, consumer investment and insurance, John Tiner. The Tiner project should be completed by September this year.
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