19 August 2008
The Financial Services Authority (FSA) has been examining
pension transfers to SIPPs. Concerns were raised in 2007 savers
could be switched into more expensive self-invested plans whose
flexibility they won't use.
Last year the FSA commented:
"Our review highlighted the potential risk that Sipp
recommendations may be based on access to a broader range of
packaged investment funds than under their previous arrangements,
rather than because the Sipp provides self-selection of actual
investment assets. Under these circumstances, a stakeholder pension
or personal pension may equally satisfy a customer's needs,
potentially at a lower cost. Sipp providers operate a variety of
charging structures and advisers need to ensure that they carry out
proper cost comparisons with the alternative personal pension and
stakeholder arrangements."
Experts say that with high sales commissions on offer to
financial advisers some investors may have been poorly advised to
transfer into a SIPP.
Many individuals have taken transfers from older or occupational
arrangmenets into such plans. These offer greater investment
freedom and control than traditional schemes. Howver they also
carry a higher level of charges typically for these extra
features.
The Financial Services Authority (FSA) says its report is aimed
at assessing the quality of transfer advice and follows concerns
that have been voiced about "commission bias" fuelling
switches.
"Advice should be based on suitability," says an FSA
spokesman.
"If investors are moving into a Sipp but not going to use its
functionality, then it might not be as appropriate as for someone
wanting more control over their investments." Some investors could
face "financial detriment" by moving from existing pensions,
particularly those with high exit fees or lower investment risk,
says the watchdog, and transfers into Sipps "will not be suitable
for everyone".
The review will be completed and published later this year.
