You may be forgiven for thinking regulations in respect of workplace pensions have little to do with SIPPs, yet recent proposals from the FCA could catch many thousands of SIPPs in the workplace net.
Already there are requirements for group SIPPs to have Independence Governance Committees (IGCs) or Governance Advisory Arrangements (GAAs) where an employer has a direct pay arrangement in relation to two or more members, but these new rules would be much more far-reaching.
In terms of regulation, the DWP and TPR are responsible for occupational schemes, and the FCA look after personal pensions. The bulk of regulation around workplace pensions historically has therefore sat with the DWP and TPR, but as personal pensions are increasingly used by employers – especially in the auto enrolment world – the FCA is increasingly present in the workplace space.
When it comes to writing the rules, the DWP tends to lead, writing the rules for TPR to implement, with the FCA following up and adapting rules for personal pensions to broadly achieve the same aims. We’ve seen this in relation to requirements for IGCs/GAAs.
It was therefore quite surprising – and alarming – that in CP19/10, published earlier this year, the FCA has moved away from TPR’s stance in terms of the requirement for disclosing cost and charges to workplace pension members. Without going into all of the details, the TPR requirements relate to schemes with two or more members. The FCA-equivalent rules are proposed to put in place extra requirements to provide information to all scheme members, even one-member schemes, where there is a direct-pay arrangement in place with the employer. This means that any SIPP that has a direct debit from an employer would be caught should the rules go ahead as proposed. The rules clearly have not been designed with SIPPs in mind, as they include a requirement to not only provide costs and charges information, but also provide an illustration on the default fund, and each and every alternative fund available to the member. For a platform SIPP provider, this would mean several thousand illustrations for each member, and for a bespoke provider, when the options are virtually endless, it would be impossible to meet the requirements.In reality, single-member SIPPs with employer direct debits are most likely chosen by the member, with or without the help of an adviser, and then they ask their employer (often their own company) to make contributions. It is not a remote employer selecting the provider and forcing that choice upon the member. We submitted a robust response to the FCA’s proposals, and hope that enough others did the same to persuade them so that these changes in their current form do not see the light of day. If not, we could see an arbitrary move away from direct debit employer contributions to ad hoc payments in order to avoid the requirements. Such a move would be a huge step backwards, with much more admin and room for error – hardly a great customer outcome.