The Association of British Insurer's (ABI) alternative to the National Pension Savings Scheme (NPSS) would aslo eliminate the need for advice based interviews, Lord Turner told the Treasury Select Committee today.
The Chairman of the Pensions Commission said there was “more commonality than difference between the two models”, suggesting the choice was between the ABI’s Partnership Pensions and the NPSS, as the National Association of Pension Funds’ (NAPF) proposals for Super Trusts was “off at a tangent”.
He said in the nature of design and the cost assumptions, there was more similarity between the two models and the current products on the market.
Turner stated: “What the ABI is trying to do is eliminate commission based salesman, as that is where a lot of cost is coming from in the form of commission paid to IFAs.”
He added what the ABI model and the NPSS are doing is “eliminating the need for an IFA to conduct an expensive regulated interview. This is a common feature, and one which is achievable.”
While giving evidence Lord Turner also reiterated his view that advice is the most costly part of the current process, pointing out 20 years ago what IFAs do was called sales not advice.
He said the change to advice came when people realised a commission based sales force led to some questionable practices, and so regulation was introduced to make it safer but that this also made advice more expensive.
Instead, Turner suggested with contingent compulsion on the part of employers and visible progress on the subject of means-testing, the NPSS would be beneficial to the vast majority of people without the need for individual advice interviews.
For people with high debts on credit cards, who would be better off opting out of the scheme, Turner suggested information through literature, and Citizens Advice Bureaux would allow people to be capable of making the decision without independent individual advice.
Speaking earlier in the session, Clive Briault, managing director of retail markets at the Financial Services Authority (FSA) agreed it may be possible “to offer information on choice without an advice intermediary”, with people capable of making decisions providing choices were limited and there was clear, simple, generic information available.
Briault suggested one way of doing this would be to follow the design of the ABI model which sees the issue of choice falling primarily on the employer rather than the employee, and with employers being provided with information which the FSA would not necessarily regulate.
On the issue of suitability and regulated advice, he added the main requirement would be information should be provided to employees, preferably through the employer, to decide whether to opt-out, and with some possible explanation of means-testing and the choice of funds available.
Briault stated this could be quite minimalist and could be no more than a clearly written leaflet explaining the options, describing it not as a regulated advice regime, but as a consumer information regime.
Michelle Cracknell, business development director at IFA firm Origen, says in general the issue of advice in NPSS comes down to the fact pensions are sold, not bought.
She adds: “In order to get individuals to save for their retirement, either the government needs to make pension contributions compulsory, in which case the problem is how much it should be, or alternatively the adviser needs to be an integral part of the process to show the benefit of saving for your retirement through a pension.”
Lesley-Anne Creffield, principal at IFA firm Morgan Peterson, agrees adding to have an adviser-free pension is ridiculous as it means the employers and employees will have no access to advise on any aspects relating to joining the NPSS or at any point of their membership when their personal circumstances or the nature of the scheme provisions should change.
She adds advice acts as consumer protection and is vital for a number of reasons including asset allocation decisions, whether the NPSS is suitable for a higher rate tax payer, and the impact of means-testing.
Creffield says: “We already have Stakeholder pensions which come with full consumer protection as it is regulated by the FSA and the Pensions Regulator throughout the term of membership and advice can be provided. Although this scheme is more expensive than the proposed NPSS, surely it is more beneficial as the charges will pail into insignificance provided the investment advice and suitability for each member is taken into consideration.”
And John Lawson, head of pensions policy at Standard Life, says there are ways of trying to build advice into the models suggested, but it really needs to be a separate charge.
He says: “At the moment its all mixed up with the product, and it needs to be set out as a fee, as generally employers might be prepared to pay a little bit extra to have someone explain to their employees what a valuable benefit the pension is. But no-one is asking them, or putting it forward in quite the right way.”
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 Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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