Investment managers may pay for 'money guidance'
UK - An independent review has concluded investment managers responsible for the assets of UK occupational pension funds should contribute to the funding of a new national system of "money guidance" expected to cost £49m (€64m) a year.
The final report of the Thoresen Review of Generic Financial Advice was published today and outlines a high-level blueprint for a national money guidance service, which it is designed to provide consumers with the knowledge, understanding and confidence to make better decisions about money issues, including retirement planning.
The estimated cost of this new service is £36-64m a year in 2008 prices, but based on a scenario of four million users a year, the report estimates the expense will be around £49m a year, which would be split equally between the financial services industry and the government.
Recommendations from the report suggest a levy would be introduced to raise the industry funding, which would include firms regulated by the Financial Services Authority (FSA), consumer credit firms regulated by the Office of Fair Trading (OFT) and National Savings & Investments (NS&I).
However, the report pointed out development in the pensions markets "creates challenges to both the demand for and the funding of the money guidance service", particularly in relation to how it treats occupational pension schemes.
As a result, it suggests because occupational schemes are created solely for the benefit of members, "these members should not be asked to fund the service directly".
Instead, it recommends that "the investment managers who manage the occupational pension scheme's assets should contribute as part of the FSA-regulated financial services sector", and where the scheme is administered by a life company, the life company would also be responsible for contributing through the FSA levy.
The report also warned as personal accounts will be classed as occupational schemes, there "should be a level playing field" between them and other schemes, even though the report was unable to reach any specific conclusions about "levying personal accounts" because the final details of the regime have yet to be revealed.
Otto Thoresen, chief executive of Aegon UK and author of the report, also unveiled 10 key recommendations which, among other things, suggested the 'money guidance' delivery system should be a 'partnership model', which sees a central body - in the short-medium term this would be the FSA - directs the strategy and sets standards but services are provided by accredited partner organisations.
Thoresen confirmed as the 'money guidance' would cover all aspects of retirement, occupational schemes would be included in the service and suggested employers could become accredited partners to deliver information to members.
He said: "Good work is already being carried out in this area by organisations such as the National Association of Pension Funds (NAPF) and I think that employers could definitely become partners. But I don't know exactly how that will work, so we will have to see what the government 'pathfinder' will decide".
Yvette Cooper, chief secretary to HM Treasury, confirmed the next step to implementing Thoresen's recommendations will see the government establish a 'pathfinder' programme - a term used to describe a continuous process from developing and refining a national service to rolling it out - which will take between 18 months and two years to fully implement and will cost between £10-12m.
"This is a serious and substantial report and it has huge potential. But we want to work with existing services rather than cut across successful strategies. We hope to work with as many stakeholders as possible in order to get those details right," she said.
Launch of the final Thoresen report coincides with the results of a NAPF survey into workplace pensions, which revealed 75% of employees believe it is important to have a pension with their job, but 45% do not have any confidence in pensions.
Findings from the survey of 1,154 employees, also indicate 40% believed pensions were the best form of saving for retirement, however 33% of employees without access to a current workplace scheme think property is still a better option for retirement.
Joanne Segars, chief executive of the NAPF, said: "It is clearly imperative that both the government and the industry work harder to restore a positive image. Increased confidence will, in part, come with increased understanding and direct access to information. The workplace is an ideal place to provide this information."
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