Pension Schemes Bill

Written evidence submitted by the Association of Professional Financial Advisers – Supplemetary (PS 18)

Summary

1. This submission is made in addition to our earlier one dated 23 October 2014, and is made with the benefit of having now seen draft Schedule NS2 to the Bill, setting out the legislative framework for the guidance service.

2. The Association of Professional Financial Advisers (APFA) fully supports the Chancellor's belief that greater flexibility for consumers at retirement is a good thing and welcomes the government’s commitment to implementing the guidance guarantee. We also believe that regulated financial advisers have an important role to play in making that vision a reality.

3. However, we believe the legislation should include a requirement that the guidance guarantee levy is allocated in such a way that it does not increase the cost of advice to consumers. Our proposed amendment to the Bill is outlined in our submission below.

4. Furthermore, having now seen the proposed amendments to the Bill, we have some additional concerns. Firstly we believe there needs to be a provision in the Bill requiring HM Treasury and the designated guidance service providers to use their resources in the most efficient and economic way when providing pensions guidance. Secondly, we believe the cost of any redress payable by designated guidance service providers, as envisaged by section 333G of proposed new schedule NS2, should be met out of the service providers’ existing budget, and not treated as an additional cost to be borne by the industry.

5. Our detailed comments are set out in our submission below.

APFA Submission

Allocation of levy – proposed amendment

6. The guidance guarantee is to be paid for by means of an annual levy on the financial services industry, with HM Treasury setting the amount required. As set out in our earlier submission dated 23 October 2014, to ensure costs are kept low, so that advice is affordable for as many consumers as possible, we believe the legislation should include a requirement that the guidance guarantee levy is allocated in such a way that it does not increase the cost of advice to consumers.

7. We therefore propose the following amendment to proposed new schedule NS2:

Line 355, at end insert –

"(2A) When making the rules under subsection (2), the FCA must ensure that the amounts to be levied on authorised firms does not result in an increase in the cost of financial advice for consumers."

H M Treasury’s power to recover pensions guidance costs

8. Section 333Q of proposed new schedule NS2 makes provision for the Treasury to recover the expenses it incurs in giving pensions guidance or arranging for it to be given by designated guidance providers. However there are no provisions within this section for the Treasury’s costs to be in any way constrained, for example there is no requirement for it or the designated service providers to use their resources in the most efficient and economic way when providing pensions guidance. Whilst we understand that the normal controls around government spending will apply, we believe that as this is industry money that is being spent, not general taxation, there should be a specific requirement built into the legislation to ensure that HM Treasury and the designated guidance providers have a statutory duty to use the resources in an efficient and economic way. This mirrors the statutory duties imposed on the Financial Conduct Authority and Prudential Regulation Authority, as well as other regulatory bodies such as the Financial Services Compensation Scheme, which are required to use their resources in the most efficient and economic way.

9. We therefore propose the following amendment to proposed new schedule NS2:

Line 389, at end insert –

"(12) In discharging their functions under this schedule, the Treasury and the designated guidance providers must have regard to the need to use their resources in the most efficient and economic way."

Redress in the event a designated guidance provider fails to comply with the standards

10. We note that under section 333G, paragraph (2) of proposed new schedule NS2, a failure by a designated guidance provider to comply with a standard set by the FCA is actionable at the suit of a private person who suffers loss as a result of the failure. Further, at 333I(1)(a) and 333L(1)(b), the FCA or the Treasury may recommend that the designated guidance provider make redress to those affected by a failure. The cost of this redress would then be included in the Treasury’s pensions guidance costs and may be recovered from the industry.

11. We believe that this arrangement does not provide any incentive for the designated guidance providers to ensure that they comply with the FCA standards, as unlike a commercial entity, they will not have to pay any redress if it is awarded – the industry or the general taxpayer will end up having to pick up the bill (depending on whether the Treasury bears the cost or passes it on to the industry). Any redress payable should therefore be funded by the provider of the guidance out of their existing budget and not as an additional cost to the financial services industry. To do otherwise would mean there is no incentive for the provider to ensure they get their processes right, as they will always be able to pass the cost of any mistakes on to someone else.

About APFA

12. The Association of Professional Financial Advisers (APFA) is the representative body for the financial adviser profession. There are approximately 14,000 adviser firms employing 81,000 people. 40% of investment and protection products are sold through financial advisers, with annual revenue estimated at £3.8 billion (£2.2 billion from investment business, £1.2 billion from general insurance and £400 million from mortgages). Over 50% of the population rank financial advisers as one of their top three most trusted sources of advice about money matters. As such, financial advisers represent a leading force in the maintenance of a competitive and dynamic retail financial services market.

November 2014

Prepared 6th November 2014