Financial Services Authority receives overall support for proposed regime for stakeholder selling

Norman Digance said:

The responses we have received to the ideas set out in the Discussion Paper we published in May are encouraging and indicate that we have achieved the right balance in our approach to the regulation of stakeholder pensions. In particular, the majority felt that the design, content and use of the decision trees were reasonable for a product with built-in consumer safeguards.

The main new proposed rules for the conduct of stakeholder pensions business are:

• stakeholder pensions will be part of the packaged product regime;
• decision trees will be prescribed and become part of the key features document;
• firms will be required to take steps to ensure that consumers have decision trees in front of them when being taken through the trees over the telephone;
• the outcome of the use of the decision trees will have to be confirmed in writing, where a copy of the route taken through the tree included;
• where there is an advised recommendation to buy a traditional personal pension (including one linked to a group personal pension) the suitability letter will have to explain why this was considered to be more suitable than a stakeholder pension.

Training and competence

The FSA does not consider that those employees taking customers through decision trees need to be qualified advisers, provided their role is restricted to giving information. But, together with administrative back office staff, they will need to be trained and competent to do the job and they will need to be properly supervised.

Consumer education

The FSA will publish the decision trees and consumer guides on pensions options. The FSA is also working with the DSS and Opra in the development of their literature. At the end of 2000 we expect to publish the decision trees on our website in both interactive and static form.

The Pensions Advisory Service has been contracted by the DSS to provide a pensions helpline which is planned to operate from October 2000 and throughout 2001. The FSA is assisting in setting up the helpline and is providing staff training.

Supervision

The FSA will take a proactive approach in the application of the regulatory tools available, particularly in the light of the introduction of decision trees. The FSA will put in place a combination of supervisory visits, mystery shopping, desk-based supervision and market monitoring.

The proposals in this consultation paper set out the regulatory regime as a whole covering authorisation/permission, financial resources, conduct of business, training and competence, supervision, consumer education, complaints and compensation. They will come into effect at N2. Before that date the rules of the Self Regulatory Organisations (for example, PIA and IMRO) will apply and Part II of the Consultation Paper sets out proposals for amending the rules of those organisations accordingly.

Notes for editors

1. The Consultation Paper The Regulation of Stakeholder Pensions is available on the FSA website (www.fsa.gov.uk). Comments on the Consultation Paper should reach the FSA by 15 September 2000.

2. The Welfare Reform and Pensions Act 1999 sets out the legislative framework for stakeholder pensions which are to be introduced on 6 April 2001. The governments target market is people on modest incomes between 10,000 and 20,000 without access to an occupational pension scheme.

3. Stakeholder pensions introduces a new factor into the market to the extent that the terms of the product are regulated. In particular, charges may not exceed 1% of the fund each year, investors may vary their contributions and must be able to transfer to another scheme without penalty.

4. Regulatory responsibility for stakeholder pensions will be shared between the FSA and the Occupational Pensions Regulatory Authority (Opra). The FSA will regulate the selling of stakeholder pensions, including those classified as occupational schemes. It will also be responsible for the authorisation of stakeholder managers. Opra will regulate the governance of trust based schemes. It will also be responsible for maintaining the public register of all schemes.