Workplace advice needs regulation, says Pensions Institute

The Pensions Institute has criticised regulators for "a massive oversight" in failing to regulate workplace advice to employers. The organisation said in a report that the FCA and Pensions Regulator should regulate it in the same way as they do with individuals.The think tank concluded that the fact that advice to employers is not regulated by these bodies "is a massive oversight on the part of the regulatory system".The institute said: "In order to close a loophole that leads to member detriment, the FCA should regulate advice to employers in the same way in which they regulate advice to individuals."Employers – particularly in the smaller company market – cannot be regarded as informed institutional purchasers and their decisions can result in unacceptably high charges for their employees."{desktop}{/desktop}{mobile}{/mobile}It said the regulators wrongly assume that buyers understand the cost of their purchases, which it said is not the case, especially for smaller employers.The report stated: "Auto-enrolees are the customers but they are not the buyers because they are auto-enrolled into a scheme bought by an employer that might not understand the impact of charges. Auto-enrolees, therefore, are 'buying blind'."The report added: "To improve their ability to regulate 'conduct' more effectively, the FCA needs to have a much better understanding of the behavioral traits – identified by us in this report – exhibited by the industry they regulate."The 'assessing value for money in defined contribution default funds' report made a number of other key points.These included:• DC market value predicted to grow more than six fold by 2030, from £276bn assets under management pre auto-enrolment to about £1.7trn.• Fierce competition will result in only five or six major trust-based multi-employer schemes by 2020.• Rapid consolidation among providers could lead to market instability and the sale of pension books to uncompetitive consolidators.• The practice of 'cherry-picking', whereby providers take on only the profitable section of a workforce, scuppers many smaller employers' plans to use an existing scheme provider for the whole workforce.• A change in contract law is needed to facilitate the mass migration of member assets from old high charge schemes to new low-charge schemes.

Workplace advice needs regulation, says Pensions Institute

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