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Financial Services Industry Wins Argument Over Pension and Investment Charges

Strategic Insights

— 2 min read

Industry leaders have successfully lobbied ministers to set a sales ceiling of 1.5 per cent for the government's proposed range of "Sandler-style" stakeholder investment products, which are designed to help plug the £27 billion retirement savings gap. The move marks a significant victory for the industry, which had argued that a 1 per cent ceiling, as set for stakeholder pensions, would be disastrous. The debate has been complicated by the involvement of the Financial Services Authority (FSA), which is drawing up a proposed framework for regulating sales.

Key Takeaways:

  • The industry has successfully lobbied ministers to set a sales ceiling of 1.5 per cent for Sandler-style stakeholder investment products.
  • This is a significant victory for the industry, which had argued that a 1 per cent ceiling would be disastrous.
  • The industry claims that a higher sales ceiling will lead to increased sales of pension plans, but the Consumers' Association disputes this, saying that price-conscious consumers will be deterred by higher charges.
  • The Financial Services Authority (FSA) is drawing up a proposed framework for regulating sales, which may require companies to offer face-to-face advice to buyers.
  • The industry has profited from the Child Trust Fund (CTF), which has been given a 1.5 per cent commission ceiling, and industry leaders believe this will be mirrored for Sandler products.
  • Industry leaders argue that the government must allow higher charges for financial services products in order to rebuild trust in the industry after a series of scandals.
  • The Co-operative Insurance Society (CIS) has been successful in selling stakeholder pensions through face-to-face marketing, but this may not be replicable by other companies.
  • The Consumers' Association has proposed the establishment of collective schemes and public advice bureaux as a way to increase pension sales and rebuild trust in the industry.
  • The issue of pension and investment charges is unlikely to be resolved immediately, with further debate and negotiation expected.

Statistics:

  • The Association of British Insurers estimates the retirement savings gap at £27 billion a year.
  • Nearly 80 per cent of consumers surveyed by the Consumers' Association said that an increase in the sales ceiling to 1.5 per cent would make a big difference to their willingness to buy pension plans.
  • The Co-operative Insurance Society's stakeholder schemes have an average membership of 30 per cent, compared to many group stakeholder schemes which have no members.

Sources:

  • The Financial Times, "Ministers consider higher commission ceiling for Sandler-style products" (no date given)
  • Association of British Insurers (no date given)
  • Consumers' Association (no date given)
  • The Financial Services Authority (no date given)
  • The Co-operative Insurance Society (no date given)

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