Pension experts have criticised the FSA for taking a “piecemeal” approach to SIPP regulation following confirmation of plans to increase disclosure requirements.
The regulator’s latest proposed changes to its conduct of business rules, published last week, would force SIPP operators to spell out any bank interest or commission they retain on members’ funds and require all personal pension schemes to produce key features illustrations, effect of charges and reduction-inyield information.
The FSA says a review of the disclosure material issued by providers found it was not always clear whether interest arising due to money held within scheme operators’ bank accounts was being retained by the operator or passed on to the member. It says: “Given the fiduciary duties firms have under the general common law and the impact of the Bribery Act 2011 for facilitation payments, our view is that firms should not act for their own benefit and make and retain a secret profit from a scheme member’s assets.
“If received, firms should disclose these payments, allowing the client to give informed consent to any commission retained. “Therefore, we are amending our proposals to require personal pension scheme operators to disclose whether they (or the pension scheme trustees) receive commissions for any asset (both cash and non-cash) held within a personal pension scheme.”
The regulator also wants all personal pension schemes, including SIPPs, to produce key features illustrations, effect of charges and reduction in yield information. The FSA says: “To help consumers or their advisers compare alternative pension products and identify the most appropriate pension option, we think our rules should require that comparable information is always made available.
“In order to achieve this, we are proposing that the existing SIPP exemptions are removed from Cobs 13 and Cobs 14, and the same disclosure rules applied to all personal pension schemes, whether branded as a SIPP or not. “This approach will be consistent with the approach of the Department for Work and Pensions, which does not distinguish between different types of personal pension scheme and requires statutory money purchase illustrations for all personal pensions, whether branded as a Sipp or not, and regardless of the underlying assets.”
MoretoSipps principle John Moret argues the FSA should not apply a “blanket” packaged product regime to SIPPs as they are not packaged products. He says: “It seems that the FSA remains determined to develop a piecemeal approach to SIPP regulation by treating SIPPs as packaged products when for many consumers the appeal of a SIPP is that it is not a packaged product. “In CP 11/03, which was published in February 2011, the FSA floated the idea of SIPPs with certain asset types being treated differently for disclosure purposes.
That seemed to be an acknowledgment that applying a blanket packaged product regime to SIPPs was not right. Disappointingly, that idea has been largely ditched in the latest proposals.” AJ Bell marketing director Billy Mackay says: “The FSA needs to get its head around the practical challenges of what it is trying to achieve here. The issue on key features illustrations is about improving comparability and it is not clear to me how this will do that. “Requiring illustrations where you are shoehorning all asset types into the same process will complicate the assumptions needed to produce meaningful illustrations. This will significantly reduce the chances of achieving any sort of comparability.”
The regulator says the new disclosure rules will require providers to produce 50,000 extra key features illustrations at a cost to the industry of £100,000 a year. This figure assumes firms already have the necessary systems in place. Capita Financial Services product director William Watling says: “This figure sounds on the low side. I think both small and large providers will find this difficult, particularly if the systems they are using are a few years old. Any kind of system change like this is a minimum six-month project.”
SIPP disclosure: what has the FSA proposed?
- All personal pension operators should disclose any bank interest or commission they retain on members’ funds.
- All personal pension schemes, including SIPPs, should be required to produce key features illustrations, effect of charges and reduction-in-yield information, regardless of the underlying assets.
Why has the FSA proposed these changes?
- The regulator wants to bring its disclosure regime into line with the Department for Work and Pensions, which does not distinguish between personal pensions and SIPPs and requires statutory money-purchase illustrations for all PPs.
- The FSA wants firms to specifically disclose bank interest or commission retained so customers can give “informed consent” that they want this to continue.
- The FSA believes these changes will make it easier for customers and advisers to compare products.
How long do scheme operators have to implement the changes?
- The FSA wants providers to implement the changes by the end of 2012.
Article by Tom Selby