WIREDGOV

The Financial Services Authority (FSA) yesterday set out its expectation that firms give suitable advice to help customers make informed decisions about transferring built-up National Insurance rebates into Self-Invested Personal Pensions (SIPPs).

From 1 October this year, people will be able to contract out of the State Second Pension into a SIPP and transfer existing National Insurance rebates (“protected rights”) from a personal pension into a SIPP.  As with all advised transactions, the FSA expects firms to ensure that any advice around these decisions is suitable and based on an assessment of customer need in order to help consumers make decisions that are right for them.

This would include determining whether there is a genuine need for the investment flexibility and control associated with a SIPP, a clear explanation of the costs involved, and how the recommendation meets a customer’s needs and attitude to risk. 

In addition, following consultation, the FSA has today published a policy statement confirming that when advising on contracting out into a SIPP, firms will also need to provide a comparison of projected retirement income from the SIPP versus potential benefits from the State Second Pension.  This requirement already exists in relation to contracting out into ordinary personal pensions.

Andrew Sykes, head of retail policy and unfair contract terms at the FSA, said:

"Decisions relating to contracting out of the state second pension or transferring pots of protected rights are important and can have a significant impact on people’s retirement income.  We expect firms to ensure they make suitable recommendations based on what is best for their customers – including, from 1 October, when these transfers are made into a SIPP. 

"At the same time, we would encourage consumers to make sure they fully understand the implications of leaving the state second pension or transferring accrued protected rights into a SIPP, to make sure it is the right decision for them."

The FSA is currently undertaking a review to assess the quality of advice on transfers into personal pensions, including SIPPs, since April 2006.  The findings of the project will be published in the fourth quarter of this year. 

The FSA’s consumer website - Moneymadeclear – contains information to help consumers understand SIPPs and pensions more generally.  This includes the printed guide The State Second Pension (formerly SERPS) – should you be contracted out? - free hard copies can be ordered online or by calling the FSA’s Consumer Helpline on 0845 606 1234.

Notes to editors

1. Handbook Notice 81, which confirms the changes that will be made to the FSA’s Conduct of Business Sourcebook (COBS) to implement the ‘SIPPs (Contracting Out) Instrument 2008’, is available on the FSA website (see page 24).  The proposals were set out in Chapter 2 of CP08/7 Quarterly Consultation Paper (No. 16), published in April 2008.
2. The Personal and Occupational Pension Schemes (Amendment) Regulations 2008, which permit people to contract out of the State Second Pension into SIPPs, were made on 23 July 2008 and will come into force on 1 October 2008.
3. Self-Invested Personal Pensions (SIPPs) first came into existence in 1989.  Since April 2007 the FSA has regulated the establishment, operation and winding-up of SIPPs.  More information on SIPPs is available on the FSA website.
4. As stated in the FSA Business Plan 2008/09 (published on 6 February 2008), the FSA is undertaking a thematic project to assess the quality of advice on transfers into personal pensions, including SIPPs.  The project is looking at transfers since April 2006 from any registered pension scheme (including occupational pension schemes and personal pension schemes) to a Personal Pension Plan (PPP) or SIPP, excluding transfers to Group Personal Pensions, Group SIPPs or Stakeholder Pensions.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.