Removal of FSA rule would open up new pensions mis-selling warns Consumer Panel

8 February

The Financial Services Consumer Panel has today written to the FSA to warn them that the impact of the proposals from Lord Turner in the 2nd Pensions Commission report would mean that if the FSA removed its rule on suitability of personal pension advice, there will be a large potential for mis-selling.

The Pensions Commission's 2nd Report recommends a new National Pensions Savings Scheme (NPSS) offering low and middle earners the opportunity to save at low cost. The Panel warns the FSA that this will have implications for the suitability standards for advice on personal pensions in both the short and long term. In the long term, it will increase the need for an RU64 type rule, as lower charges on an NPSS pension would need to be taken into account in assessing suitability.

Even more worrying is that in the short term, when the introduction of NPSS is on the horizon with no RU64 in place, some financial services firms could decide to push personal pensions at people in the last few years before NPSS. This could mean a new round of mis-selling, causing consumers not only to take on a pension that is more expensive than they need, but might also make them ineligible for the NPSS (or make them disinclined to join it) when it is introduced.

John Howard, Chairman of the Financial Services Consumer Panel said:

"We believe that if the industry cannot justify selling personal pensions at a higher price, and is allowed to avoid the obligation of telling consumers about cheaper stakeholder products, this will be tantamount to mis-selling on a significant scale. So the industry and the regulator should brace themselves for widespread claims for mis-selling in the future, unless this rule is retained."

The Panel also uses the letter to the FSA to dispute claims by the industry that this is the FSA controlling prices, because even with this rule, advisers are not prevented from selling other pensions with higher charges than stakeholders.

Notes to editors

1. The details of the FSA's proposals are in its consultation paper CP 05/08**. The letter that the Panel has written to the FSA follows on after these notes to editors.
   


2. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.
   


3. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit.
   


4. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
   


5. There are currently eleven members of the Panel as listed below (for further information on individual members, see the Panel's website).

   John Howard (Chairman)
   Adam Phillips (Vice Chairman)
   Caroline Gardner
   Harriet Hall
   Tony Hetherington
   Stephen Locke

   Nick Lord
   David Metz
   Paul Salvidge
   Robert Skinner
   Carol Stewart