The Financial Services Authority (FSA) has published new rules for Sipp operators on how to provide key features illustrations.
The rules include new ways to show customers investment returns. Prior to today’s paper, 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.
The FSA has delayed the implementation of these changes from 31 December 2012 to 6 April 2013. Several providers had complained they had too little time to implement the changes because of the retail distribution review.
The FSA will also reduce its standard projection rates. These rates, applied to personal pensions or life policies, give an indication of possible future returns and the impact of charges. The new rates will apply from April 2014.
Tax advantaged products such as personal pensions will see rates drop from 5%, 7% or 9% down to 2%, 5% or 8%
The new projection rates reflect an independent report by PricewaterhouseCoopers. The FSA said it will reduce the possibility of consumers being given a ‘false impression’ of the investment returns they might receive.
The FSA has also proposed the following:
- New guidance to improve product information in Key Features Illustrations (KFI)
- That 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
The paper also revealed product sales data from January to June 2012. It showed 110 firms took on new schemes branded as Sipp, with fewer than 100 firms doing ‘significant business’.
The FSA said these firms will face additional costs, if they do not currently produce KFIs including the information required by these changes.
Data also shows 200,000 Sipps are sold each year, of which 50% are sold through advisers.