The UK government has issued a further set of consultation proposals on the regulation of stakeholder pensions, suggesting that the concept of a stakeholder pension manager be created for financial services companies setting up stakeholder plans.
The manager, authorised by the Financial Services Authority (FSA), would act on a par with the role of trustees in pension funds, which the government believes to be the best way to safeguard members’ interests.
Regulation of the marketing of funds and the provision of advice to members will also be the remit of the FSA, with the Occupational Pensions Regulatory Authority (OPRA) charged with stakeholder scheme registration compliance.
Stakeholder plans will also be required to supply members with detailed projections of potential benefits, a “decision tree”, assistance in interpreting the information and generic advice.
Excess advisory charges will have to be clearly disclosed and a 14-day cooling-off period will be available to anyone joining a scheme.
In a response to the proposals, Wendy Beaver, senior consultant at consultant William M Mercer, says: “In setting its exacting standards of governance and control, the government may not provide sufficient commercial incentive for many stakeholder schemes to get off the ground.”
She also warns many funds may experience the “very real prospect of financial losses” in their early years as schemes mature, only to watch members leave just as the fund becomes profitable, due to proposals that members be able to switch funds at will.
Mercer also suggests that employees should have completed two years of employment in a firm before stakeholder has to be offered, suggesting that the government’s suggested six-month waiting period could prove to be an “unnecessary burden” on some companies.
Consultant Watson Wyatt believes that a blanket exemption should apply for all temporary and contract employees and has also urged the government to lengthen the time-scale for stakeholder implementation or risk “creating a muddle that might give stakeholder a bad name”.