The Financial Services Authority (FSA) has published new rules requiring Self-Invested Personal Pensions (SIPPs) operators to provide Key Features Illustrations (KFIs) to consumers and show how charges impact upon a consumer’s investment return. Prior to today’s policy statement, SIPPs were exempt from the disclosure rules applying to other personal pension schemes.
The FSA is also requiring scheme operators to disclose any interest or commissions they receive from banks, so that consumers are left in no doubt about the profits operators keep.
Sheila Nicoll, director of conduct policy at the FSA, said:
“As the size of the SIPPs marketplace grows and roughly half of individual pension schemes sold to consumers are SIPPs, it is clear that we must take a market-wide regulatory approach. We simply cannot justify maintaining the status quo.
“Personal pension scheme holders deserve to know exactly how much scheme operators retain from banks – in commission or interest. These profits can no longer be hidden from consumers.
“The rules published today will help consumers compare different pension products – including the charges incurred – so they can make informed choices about their long-term savings.”
The new disclosure requirements for SIPP operators will come into force on 6 April 2013.
FSA lowers its projection rates
The FSA has confirmed it will reduce its standard projection rates. These rates give consumers taking out a product such as a personal pension or a life policy an indication of possible future returns and the impact of charges. The new projection rates reflect PwC’s independent and peer-reviewed report and reduce the possibility of consumers being given a false impression of the investment returns they might receive.
|
Current projection rates |
New projection rates (from 6 April 2014) |
Tax-advantaged products |
5%, 7%, 9% |
2%, 5%, 8% |
Tax-disadvantaged products (e.g. endowment policies, investment bonds) |
4%, 6%, 8% |
1.5%, 4.5%, 7.5% |
The FSA has further clarified its rules to say that providers should always use appropriate rates of return, subject to the FSA’s maximum projection rates.
Firms have a year to implement the new projection rates, which come into force on 6 April 2014.
Proposals for product information and CPI assumption
The FSA has also proposed the following:
- New guidance to improve product information in Key Features Illustrations (KFIs) provided to consumers;
- Projection rates used in KFIs for personal pensions and SIPPs should be adjusted for inflation so they are consistent with the annual pensions statements which pension scheme members receive;
- Setting an explicit Consumer Prices Index (CPI) assumption of 2% for transfer value analysis, so that all advisers are using the same CPI assumption when advising on a transferring benefits from a defined benefit pension scheme to a personal pension.