• FSA Library
  • Communication documents
    • Press releases
      • 2005

FSA/PN/073/2005
28 June 2005

A change to the FSA regime dealing with advised sales of personal pensions is proposed in a Consultation Paper published today. This proposal is to drop the requirement – colloquially known as RU64 – for an adviser, when recommending a personal pension, to explain in writing to the customer why the pension recommended is at least as suitable as a stakeholder pension (SHP).

The RU64 rule was introduced six years ago to cover the run-up to the introduction of Stakeholder Pensions. It was important at that time to avoid a 'closing down sale' of existing high-charging and inflexible personal pensions, with buyers locked into these, in advance of the introduction of the Government's price-capped stakeholder version. Consumers needed to be able to switch to the better value option when it became available without onerous transfer terms and RU64 provided for this.

However, there is evidence to suggest that over the longer term, the rule may have had an adverse impact on the market for personal pensions by forcing advisers to benchmark all personal pensions against SHPs. There are now fewer advised sales of personal pensions, particularly to lower-income consumers, and the industry believes that this is a result of the difficulties advisers face in meeting RU64.

Dan Waters, Director Retail Policy, FSA said:

"The FSA is concerned that the rule may have contributed to a contraction in the market and effectively caused a group of consumers to be excluded from saving for their retirement in a tax-efficient way.

"To help achieve wider access to advised sales of pensions, we believe it is now right to remove the rule and to bring the standards governing the sale of personal pensions into line with those for all other packaged products. In particular, our suitability rule will continue to apply in the same way that it does for all such products.

"We recognise that introducing flexibility in the way personal pensions are sold may contribute to higher pension prices in future. However we expect that the greater price transparency operating under the new depolarised system, including the Menu disclosures, will help consumers to actively compare charges to get the best value for money.

"Following removal of the rule, we would monitor the market to assess the impact of the change and would take action should we see significant consumer detriment arising."

 

Notes for Editors

1. CP 05/08 Suitability standards for advice on personal pensions is available on the FSA Website.
2. Regulatory Update 64 (RU64) was issued by the Personal Investment Authority in 1999 to give firms selling personal pensions guidance on good practice in advance of the launch of Stakeholder Pensions (SHPs) in April 2001. RU64 fell away following the introduction of SHPs but the standards it established were brought into the FSA Handbook in November 2001 as COB Rule 5.3.16R(3).
3. The effect of RU64/COB 5.3.16R(3) is to modify the general rule that advisers need to consider only products within their range when making recommendations. Where an adviser decides to recommend a personal pension (or free standing additional voluntary contribution (FSAVC) plan) they must explain in the suitability letter why the personal pension or FSAVC recommended is at least as suitable as a stakeholder pension (SHP). This is exceptional because the requirement to consider the relative suitability of the SHP applies whether or not the range of products that the adviser can sell actually includes a SHP.
4. A stakeholder pension must conform to the Government’s criteria with regard to the features of the product. An important element of the design is a cap on the annual charge that the provider can make. The cap was originally set at 1% in April 2001 and subsequently raised to 1.5% in April 2005.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.