Articles - Advising on workplace pensions


Pensions are full of little nuances. As with any concept that has evolved over several decades and through various governments and regulatory bodies, there are oddities that sometimes creep to the surface. Here is one that often catches people by surprise – there are no regulations in place around who can advise an employer on setting up their workplace pension.

 By Dale Critchley, Policy Manager, Aviva
  
 Before anyone gets carried away, I’m not saying that there are people out there acting as advisers with only an O-Level in woodwork to their name. But advisers on workplace pensions are not subject to the same rigorous financial regulations as financial advisers who work with individuals.
  
 That could be about to change though. The FCA (Financial Conduct Authority) has made a recommendation that employee benefit consultants be brought under Treasury regulation. The ultimate decision will be made by the Competition and Markets Authority, but the debate has so far split the pensions industry.
  
 There are some that argue the case for additional regulation hasn’t been made. They make the point that the costs that will be incurred, probably by the pension scheme, outweigh any significant benefit.
  
 There are also those taking the middle ground. Advisers currently working with employers on their workplace pensions are usually very well qualified and work for businesses with robust internal governance processes in place. Any additional regulations could be extended without making wholesale adjustments to their business model.
  
 It does feel like a loophole that needs to be closed off. There are currently no rules around who can offer advice - but poor advice regarding who should be the scheme provider, or the structure of the scheme, could lead to a whole workforce being out of pocket.
  
 Any changes in regulations would be a significant development for some advisers with significant financial implications. Costs could run to millions of pounds across the industry, depending on the strength of the regulations and the number of changes each consultancy needs to make.
  
 The question is, how soon can this happen? It will need legislation to push it through and will introduce some new concepts. The FCA only regulate the advice process on investments that fall under their remit, they don’t regulate trust based pension schemes. But to be effective the FCA will need to regulate advice to employers on all workplace pension schemes. That may not be straightforward and with the government focusing on Brexit there are limited opportunities to get primary legislation through Parliament.
  
 On balance, regulation is probably necessary. There’s little for the best advisers to fear, they’re already delivering good outcomes for their clients. The new regime is about addressing the outliers who may put retirement outcomes at risk. It’s also about ensuring continued confidence in the market. Making sure that employers have no about the capability of their adviser and the quality of the advice that is being provided to them about an incredibly valuable employee benefit.

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