The recent consultation on the lifetime provider model (or member choice, or pot for life, depending on the name you prefer) has nothing to say about advice. Which is interesting as I cannot see how advice cannot be considered when looking at the possible impact.
Since RDR and Automatic Enrolment, the workplace pension market has largely been an advice-free zone. One can advise the employer, and many people do, but the vast majority of employees in the UK get no advice on their workplace pension.
The argument is that with automatic enrolment, scheme governance and default investments there’s no the need. Nor would it really be feasible within the 75bps charge cap.
But if the UK does move to a system where the employee is allowed or even encouraged to choose which pension their contributions go into, there are going to have to be some questions asked about how advice sits in this new world.
How will people choose their pension provider?
If member choice comes in, then people will be able, and I expect encouraged to choose their pension provider, not least through advertising. But how will they do so?
We don’t really have pensions comparison services in the UK. Well, they exist, but not many people use them. After all, most people are simply given their pension by their current employer, so they don’t have a choice to make. I would expect this to change.
Except there’s a wrinkle. Money Supermarket, Compare the Market etc are not free services. They get paid by commission. Something explicitly banned for pensions advice. Now it can be paid for non-advice using the making arrangements rules, for example. But this is rare, and I would expect the FCA to think pretty hard about what it will be willing to allow in this area.
This also feeds into the recent advice boundary consultation. Would a pensions comparison service be ‘targeted support’ or ‘simplified advice’ for example?
I believe this is important because millions of people will need to consider which provider to choose, and the UK advice industry isn’t set up for this. Some may move into this space, but I expect that the simpler needs of most people will be met through comparison tools rather than the full holistic advice approach.
What about people who already use advice?
The other question that will need to be looked at is what to do about the clients advisers already have? In particular, how advice charges might play into questions around the charge cap.
If you have a client with pensions savings, it’s pretty likely you’ve advised them to transfer some of the old DC pots onto your platform of choice. The FCA has made it pretty clear what it thinks about moving the pension from the current employer over, however. If the employer even allows it, and many won’t.
Member choice, of course changes this, and I would imagine many advisers will rightly propose that the regular contributions now be made to the pensions wrapper on the platform. It allows for control of the overall portfolio, reduces the number of pots, and frankly just seems reasonable. Especially if slick processes are in place to facilitate this.
Except…
What will the view of the regulators be of any ongoing advice charges then taken from that pot? Will they consider it to still be covered by the 75bps maximum charge?
Big questions, but ones yet to be answered.
