Stakeholder pensions - The Government's proposals on regulation, information, advice and governance

The Government has just published its 4th and 5th consultation papers. Brief no. 4 looks at the regulation of stakeholder schemes and the provision of information and advice to members. Brief no.5 looks at the type of governance structure which stakeholder schemes should have and whether there will be an alternative to trust based schemes. A copy of the full consultation papers are available at http://www.dss.gov.uk/hq/pubs/stakepen/govern.htmand http://www.dss.gov.uk/hq/pubs/stakepen/regulate.htm

Brief no. 4

It is proposed that Opra will regulate the operation of stakeholder schemes and the FSA will regulate their marketing.

Prospective members will need to be given certain basic information about the scheme and the Government continues to work on the development of decision trees to guide people through the relevant issues.

On the issue of advice, the aim is for sufficient advice to be covered by the basic scheme charge to enable most people to decide whether to join a particular scheme and on what terms. Any charges for additional advice will need to be clearly disclosed.

There will be a 14 day cooling off period for anyone joining a stakeholder scheme.

Brief no. 5

The basic proposal remains that stakeholder schemes should be trust based. The Government does not believe that it will be difficult to get individuals to become trustees and in response to the potential problem of trustee liability, it has said that trustees will be able to limit their personal financial liability and take out insurance (paid for out of the basic charge paid by members).

The Government are seeking further responses on what the composition of stakeholder trustee boards should be, in particular whether they should include member-nominated trustees and also on issues such as the appointment of professional advisers and whether stakeholder schemes which cease to meet the prescribed minimum standards should be required to wind-up.

The Government have accepted that trustee boards may pose difficulties in some cases (where for example schemes were set up by financial service companies). To encourage the development of stakeholder schemes, they have therefore suggested that there should be an alternative governance structure.

This alternative would consist of a "stakeholder pension manager" who would be authorised by the FSA. Members' rights would then be governed by the terms of a contract with the manager. The Government have invited views about the possibility of a members' advisory committee which could require reports from the manager.

Responses to the consultation papers are due by 10 September.

For further information on this or other pensions issues, please contact Nigel Moore on tel: 0171 367 3405 or [email protected]