Stakeholder pensions Consultation Briefs 4 and 5
ACCA's responses to the Stakeholder Pensions Consultation Briefs 4: Information, Advice and Regulation and 5: Governance issued by the Department of Social Security are set out below.
No 4: Regulation, Advice and Information,
Advice and Regulation
No 5: Governance
No 4:Regulation, Advice and Information, Advice and Regulation
Regulation of stakeholder schemes
The success of the entire stakeholder concept depends on appealing to a target audience which is likely to be deterred by undue complexity and uncertainty in the rules surrounding pensions. Given the well-publicised recent problems with personal pensions, potential investors are likely to want a clear indication of who they are entitled to approach for information or for problem resolution before they sign up. While we understand the reasoning set out in the consultation brief for why there should be separate regulators for different aspects of stakeholder scheme activity, we suspect that the existence of different regulators will make it more difficult to successfully market the new pension.
Information
We agree that decision-trees, along the lines set out in the brief, can be useful as a means of summarising the sort of questions that people should ask about the suitability of any single scheme to them. This being said, trees must not be presented as being other than for outline information purposes. Any thorough assessment of the appropriateness of a type of pension scheme for a particular individual will include so many relevant variables that any decision tree drawn to log the procedure leading to the investment decision would be many pages long.
Care must be taken, then, to avoid presenting the possible outcomes to the questions posed in the tree as advice. In this light, we suggest that it is incorrect for the tree, on page 17 of the brief, to include the statement 'A stakeholder pension would be a good choice for you'. In our view, the decision tree approach should invariably be accompanied by a warning to the effect that no decision should be taken on the basis of the information contained therein without first seeking advice.
Advice
We suspect it is unlikely that many individuals in the target audience will, in practice, be prepared to pay a separate fee for specific advice before joining a stakeholder scheme. We would favour schemes being required to make advice available to prospective members should they choose to avail themselves of it, with the cost being met from the standard scheme charges.
We accept that the cost of providing advice may well jeopardise the ability of schemes to remain within the proposed 1% charge cap. In our view, the desirability of schemes offering advice is such that schemes should not be compelled to remain within that charge limit. While we accept the validity of the Government's eagerness to keep charges low, our view is that middle-earners are more likely to be attracted to a pension which offers value for money than one which is conspicuously cheap.
No 5:Governance
We welcome the decision to widen the possible governance bases of stakeholder schemes.
Trust schemes
The brief responds to the criticisms that have been levelled at the previously-announced intention to adopt the trust structure as the basis for stakeholder schemes.
As regards costs, the brief uses the example of a hypothetical scheme with 25,000 members and an average accumulated fund of £20,000 per member to explain how trust schemes might contain their costs. It should be acknowledged that it will take any scheme some time before it reaches maturity, at which stage we accept that trust-based costs will be containable. Until then, however, the costs associated with the trust-based scheme will be substantial.
The brief also responds on the issue of the difficulty of finding trustees. Notwithstanding the statement in para 26 of the brief, we still believe that it will be difficult to locate individuals who are prepared to take on responsibility for the stewardship of trust-based stakeholder schemes. In view of this, we do not think it sensible to lay down detailed rules on the composition of boards of trustees.
In particular, we do not think it advisable to provide for member representation on stakeholder trust boards. Stakeholder schemes will not have the cohesion that single-employer company schemes have, and the element of direct member representation on trustee boards is unlikely to be able to be replicated.
We suggest that it would be a helpful gesture if the Department could produce a clear statement of responsibilities and liabilities of trustees of stakeholder schemes.
Actuaries
We do not think that there is any need for money purchase-based stakeholder schemes to be required to appoint an actuary. The scheme's auditor will be in a position to make any whistle-blowing disclosures that might be necessary in respect of a given scheme.
Outline Model - Annexe 3
In item 5, concerning the stakeholder scheme's statement of principles, we assume the reference should be to whether or not the scheme has a policy on socially-responsible investment.