PIA update 64 should be considered when selling FSAVCs pre-stakeholder Sun Life and Scottish Equitab...
PIA update 64 should be considered when selling FSAVCs pre-stakeholder
Sun Life and Scottish Equitable are recommending intermediaries selling free-standing AVCs (FSAVCs) do so in line with PIA rules on selling personal pensions pre-stakeholder.
Both think there is a high chance that FSAVCs will be judged in the same category as personal pensions when it comes to selling the products in the run-up to the introduction of stakeholder. The stakeholder consultation paper concerning taxation may have serious knock-on effects on existing pensions arrangements.
On the surface the taxation paper will simply spell out which tax regime stakeholder will fall into, personal pension or occupational. However, it will also deal with the issue of whether an existing pension scheme can be run in parallel with a stakeholder. If the Government allows parallel schemes then some scheme members may want to switch their FSAVC to a stakeholder.
Although stakeholder is targeted at the broad market, and not at the high end, its annual contribution limit of £3,600 makes it an attractive vehicle for many higher-end pension contributors.
Paul Smith, head of pensions development at AXA Sun Life, said: If they allow this then FSAVCs would fall under the PIAs regulatory update 64 on not materially disadvantaging members. The PIA has said 64 extends only to personal pensions. FSAVCs were not considered as they only apply alongside occupational schemes.
Technically FSAVCs are personal pensions. If parallel schemes are allowed then stakeholder could become a replacement for FSAVCs and the transfer considerations are the same as for a personal pension, therefore it becomes relevant to 64. The same principles when advising on a personal pension should then be applied to a FSAVC.
Steven Cameron, pensions development manager at Scottish Equitable, said if the Government does not allow parallel schemes to run then there may still be an impact on FSAVCs. If the scheme run by the employer switches to a stakeholder then the member could no longer make additional contributions through another vehicle.
It is this issue that prompted Scottish Life last month to announce it would not enter the stakeholder market if the Government continues to disallow consumers to run existing pension arrangements alongside a stakeholder.
Pension holders may be tempted to get out of their existing plans and switch to a stakeholder which may not be in their best interests.
It was suggested by the Government that checks could be made by the provider to ensure no one exceeds contribution limits if they operate two schemes. The cost and administration implications of this proved unpopular among pension providers.
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