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 FSA is currently considering the responses to its consultation CP 05/08**, that proposed removing the rule commonly known as RU 64, which essentially requires all types of adviser (tied as well as whole of market) to explain in a suitability letter, why the personal pension recommended is at least as suitable as a lower charge stakeholder pension.

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.

– ends –

MEDIA ENQUIRIES