UK RDR changes may deter pension saving
UK - Changes to UK regulation forcing employees to pay for advice and management costs upfront rather than by commission could lead them to opt-out of pension saving once auto-enrolment is introduced, Creative Benefit Solutions has warned.
The employee benefits consultancy has claimed the changes proposed by the Financial Services Authority’s (FSA) Retail Distribution Review (RDR) to replace adviser commission with fees could cost employees leaving pension schemes approximately £123m (€149m) a year.
In December, the FSA issued a consultation on delivering the RDR that covered additional areas such as the impact on corporate pensions.
In particular, it set out proposals for “removing commission bias” from the group personal pension market by ensuring employers can agree up-front “how much investment advice will cost them and how they will pay for it”.
But Creative Benefit Solutions argued the RDR changes would result in employees paying advisory and management costs to join a company pension scheme up-front.
The company has calculated these at approximately £350 a member that will no longer be able to be paid by commission over a longer, and more manageable, period of time.
Doug Johnstone, chairman at Creative Benefit Solutions, said: “These costs will impact on the number of employees saving for their pension - £350 is a significant sum of money, and we fear people will opt out of occupational pensions, even with the forthcoming auto-enrolment legislation.”
Auto-enrolment is scheduled for introduction in the UK from 2012, although a new pension saving scheme using auto-enrolment, the National Employment Savings Trust (NEST), is set for a ‘soft-launch’ early next year.
Creative Benefit Solutions said the expense of joining a pension scheme with auto-enrolment could easily build up, as people tend to hold a number of jobs during their working life.
A £350 fee to join the pension scheme could “impact on a person’s desire to move employers, or to be enrolled in a company pension scheme at all”, he said.
Johnstone added that, while the company supports the FSA’s intention to protect consumers and improve the financial services industry, “this is not the way to do it”.
“We urge the FSA to open a dialogue with us and other pension scheme providers so this injustice can be resolved,” he added.