Legacy pension providers will suffer more than those offering new products under the regulator's proposed changes to the Financial Services Compensation Scheme (FSCS) levy, Dentons Pensions has said.
Director of technical services Martin Tilley (pictured) argued if the regulator's proposals include legacy providers rather than providers of new products only, those with closed books would be more deeply affected by the additional unexpected costs than their competitors.
The Financial Conduct Authority (FCA) is currently consulting on the way FSCS levies are being collected. The regulator proposed product providers share the burden of the cost with advisers for the first time but did nothing to suggest it would exclude those with closed books from its proposals.
Although the FCA said it believes it is appropriate product providers "pay additional contributions" considering their "product governance responsibilities", it added it was important the proposals were both affordable and sustainable for providers.
Tilley argued while providers of new products would be able to pass on the extra cost to consumers, this was an option not open to those running closed books.
He said: "With new product providers the additional cost and levy would be included with new product pricing, which means it is going be passed on to the consumer. Which, of course, with existing products and policies can't easily be done. It's a fixed cost charge and if they have additional costs put on them they can't really renegotiate the contract terms of the products they've already got."
Repeat of pension freedom woes
In a similar vein to the struggles some legacy providers faced in adapting to the pension freedom changes, Tilley said legacy providers would find themselves trapped under the levy changes because of the way their businesses are set up.
He said: "The problem that closed-book firms have is that they have bought books and are running them on limited margins because they know exactly what pricing contracts these products have. This is why when pension freedoms came out a number of them said ‘we don't have the policy or the budget, money or finances to do it - it wasn't on the table when we bought this book of business'."
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