Pension charges may rise after the removal of RU64 but this is not necessarily a bad thing, industry figures say.
Steven Cameron, business development manager at Scottish Equitable, says, “At the moment, for some individuals, advisers cannot offer individual pensions advice because the charges are too low.”
This, he says, is because RU64 requires IFAs to explain why stakeholder pensions are not a better product than the pension package being recommended.
IFAs, providers and industry bodies argue the rule restricts the distribution of pensions to the mid to low-earner market as stakeholder has a capped charging structure which leaves little or no money for the cost of advice.
“In these circumstances I expect the charges to go up to cover the advice costs,” says Cameron.
Cameron does not expect the increase to apply across the board but only in the cases of less wealthy people.
He believes this is a good thing because these people are excluded from advice and so do not buy pensions; "if RU64 is abolished more people will be able to buy pensions. A modest increase in prices is worth it,”." he adds.
But, Alisdair Buchannan, head of communications at Scottish Life, says abolishing RU64 will "not necessarily" push up pension charges.
He points out charges in stakeholder products start low but go up steeply, whereas charges in non-stakeholder products start higher but increase more gradually.
"This means stakeholder products may be better for people who want them for a short time, but running the policy for a long time causes the charges to add up," he says.
A stakeholder who pays in £100 will get £100 back if they transfer quickly, but Buchannan points out the costs are met by the person who has a stakeholder in the long-term.
Buchannan questions whether this is in line with Treating Customers Fairly (TCF).
"Non-stakeholder products have much less of a cross-subsidy between people who have them short-term and people who have them long-term," adds Buchannan.
He believes this is in line with TCF: “I believe strongly that the non-stakeholder charging structure is much fairer than the stakeholder structure, and this is a reason why abolition [of RU64] is the right thing to do.”
Buchannan says abolishing RU64 will give IFAs the benefit of flexibility saying: “IFAs will recognise they no longer have to use stakeholder type products. We will have a wider choice of products for IFAs to recommend”.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
Partner Insight Video: Advisers have had to adapt to the changing investment landscape.
Investment trust savings scheme