Decision trees will be become part of key features documents for the sale of stakeholder pensions un...
Decision trees will be become part of key features documents for the sale of stakeholder pensions under proposals from the FSA.
Under the proposed regulations, firms selling stakeholder pensions will be required to take steps to ensure consumers have decision trees in front of them when being taken through the trees over the telephone.
The outcome of the application of the decision trees will have to be confirmed in writing, where a copy of the route taken through the tree will be included. Brokers will also have to send out a 'reason why not' letter if they advise a client to buy a traditional personal pension, including one linked to a GPP, rather than a stakeholder pension. The letter will have to explain why this was considered to be more suitable than a stakeholder pension.
The FSA added it does not believe staff taking customers through decision trees need to be qualified advisers provided their role is restricted to just providing information.
It added telephone staff, as well as administration back office staff, must be trained to do the job and that they will need to be supervised.
The regulator is to publish its decision trees and consumer guides on pensions options and is also working with the DSS and Opra in developing its literature.
It expects to publish the decision trees on its website in interactive and standard form at the end of the year.
The Pensions Advisory Service has also been contracted by the DSS to provide a pensions helpline which is set to operate between October this year and throughout 2001.
The FSA is helping set up the helpline and is providing staff training. In terms of supervision of stakeholder sales, the FSA will use mystery shopping, supervisory visits, desk-based supervision and market monitoring. Stakeholder pension managers must also be authorised by the PIA as this will be a new permitted activity under the FSA's proposals.
Scottish Mutual said the PIA recognises that a considerable initial investment will be required by stakeholder pension managers in setting up systems and training staff and that it will take a number of years before reaching the break-even point.
As well as maintaining financial resources at the minimum level, stakeholder pension managers will have to hold a capital reserve equal to their projected losses for three years.
Firms will have to review their position quarterly and, if necessary, inject additional capital based on forecasts for the next three years.
Ian Westwater, pensions specialist in Scottish Mutual's technical support unit said: "Although the Inland Revenue and DSS regulations appeared to open the way for IFAs to act as stakeholder pensions managers, the PIA's requirements are likely to impose too great a financial burden for the average IFA. Indeed there may be some providers who will find these requirements prohibitive."
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