The FSA and PIA consult on proposals to review special categories of FSAVC business

http://www.fsa.gov.uk/pdf/cp27.pdf

The FSA and PIA are proposing that all regulated firms which have sold FSAVCs should review four particular categories of sale where there is a risk that unsuitable advice has been given.

In total, the regulators estimate that the firms will have to review between 57,000 and 110,000 FSAVCs sold since April 1988 (this accounts for between 6% and 11% of all FSAVC sales). The regulators estimate that redress could be between 122 million and 241 million.

Michael Folger, Director of Investment Business at the FSA said:

"These proposals, together with the other consumer-focused steps we have already taken, are designed as an effective and proportionate approach to the problems identified through our monitoring work in 1998.

This includes measures to identify and deliver redress to consumers affected by unsuitable sales made in the past, plus steps to help consumers make the right choice in the future. Looking ahead, prevention is better than cure."

Consumer Information

The FSA has produced a factsheet for consumers to explain the consultation process, the circumstances in which people might have lost out and, in particular, letting people know what to do now. FSAVC pension top-ups were you badly advised? is available today from this website or from the FSA Leaflet line on 0800 917 3311;

http://www.fsa.gov.uk/pdf/consumers/fctsht_penstopup.pdf

In addition to this, two further factsheets will cover:

information for investors involved in the review. We are publishing this for consultation today; and

a general information factsheet which will be issued post consultation and will update the factsheet issued today. The FSA will use this to target employees through the workplace and through their trade unions.

FSA published a consumer leaflet in January 1999 explaining the options open to members of occupational pension schemes thinking of boosting their pension.

http://www.fsa.gov.uk/pdf/consumers/occpen.pdf

Proposals

The four categories of sales that are proposed for review are:

employees whose occupational in-house scheme provided for an employer contribution to match that made by an employee to an in-house AVC;

employees whose occupational scheme provided for an enhanced employer contribution into the in-house AVC or to the main pension scheme (but not to an FSAVC);

members of the Armed Forces Pension Scheme where any pension top-up can easily lead to over-funding ; and

certain sales of regular premium pensions to employees in a "waiting period" to join an occupational pension scheme with the intention of converting the personal pension into an FSAVC.

The proposed review will cover all FSAVC business from 29 April 1988 to 15 August 1999. (ie from implementation of the Financial Services Act to date.)

For some categories of business (eg matched funding and money purchased subsidised) there will be a simplified method of calculating redress. This is expected to cut the administrative costs of the review without damaging investors interests. Firms will not be able to pick and choose whether they use this.

Notes for editors

The consultation period for this document runs until 8 October 1999.

Around 1 million FSAVCs have been sold in the UK. Most FSAVC sales are made direct by 25 or so product providers in the market.

These detailed proposals for a review follow on from the FSAs announcement in October 1998 that in work conducted for PIA it had identified a problem with the sales of some FSAVCs. The categories to be reviewed are slightly wider than those described previously reflecting the work that has gone on to refine identification of groups of investors who may have received poor advice.

FSAVCs and AVCs are very similar products; both enable an employee to top up his or her pension provision through contributions, which enjoy tax relief, to a fund yielding additional pension benefits upon retirement.

AVCs typically but not always have lower charges and expenses than FSAVCs. This is because the administration costs of AVCs are often subsidised by the employer and investors buying AVCs do not incur the costs of advice, which they do if they buy an FSAVC from an adviser. Both FSAVCs and AVCs vary in type of investment vehicle they offer and in the performance of their returns.

The FSA published a consumer booklet "Boosting your occupational pension" in January 1999. Copies are available from the FSA leaflet line 0800 917 3311. Bulk copies from 020 7066 3298.

http://www.fsa.gov.uk/pdf/consumers/occpen.pdf