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Pension churn is happening despite report's flaws

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Pension churn is happening despite report's flaws

Just because the Consumer Focus report on personal pension switching, and its conclusion that trail commissions were driving churn, was flawed does not mean it is wrong.

Advisers and providers have been united in condemning the findings, said to be based on too few respondents and the assumption that any switch is an unsuitable switch, which is obviously not the case.

However, the report failed to investigate group personal pensions, which although losing commission in 2013 will continue to pay commission on new member policies after that date.

There was also no mention of so-called ‘badged’ Sipps, suped-up individual personal pension (IPP) products sold under the Sipp name that have attracted clients and advisers looking for something a bit sexier than their plain IPP. Both of these are clearly churning opportunities.

But more than that, I think a lot of people reading the report felt it rang true - despite the FSA's warnings about clamping down on commission in the run up to 2013, there will be some who see it as a last ditch attempt to squeeze a bit of commission before adviser charging comes into force.

The flaws of the report do not mean its conclusions are necessarily false. Its argument, that the RDR deadline, lack of transparency from providers and lack of understanding of trail by customers, would drive unsuitable pension switching is cogent. It bears further investigation, perhaps by the FSA, not less.

If there are bad practices then it is in the interests of the advisers responsible and their sponsoring providers to kill-off this report. So don’t let this false start allow bad-old model practices to run amok.

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