This was FCA approved for Profile Pensions in 2020.

We wonder whether we are getting VFM from workplace pensions; well relative to the type of pension plan you could buy last century, anything is VFM. Now the FCA are back to review the debris that is left after commission has been taken from the legacy commission based plans.

In the beginning there were capital units that paid enormous commissions to insurance salesmen who called themselves financial advisers. They assumed that VFM would arrive over 30 or 40 years so high charges in the first two would even out with not so high charges over the next 28 to 38 years. Except that most policies got paid into for up to two years and seldom made much money for the policyholders. This was the same for the last range of 226 policies and the first range of personal pensions and FSAVCs.

The first attempt by regulators was to require personal pensions to be fair to people who didn’t pay for 30 or 40 years into the plan was known as single premium commission.

Protected Rights Personal Pensions (introduced in 1988, had to be set up to receive protected right rebates to on a single premium basis. This was horrible for “financial advisers” who had been used to AMCs of up to 6% on all regular contributions paying them commission of up to 80% of the first year payments. Most had no salary and were self-employed.

The abolition of the back end loaded charging structure when all the pain was felt at the back of the contract followed with the stakeholder pension.  The job was completed in 2012 with RDR. There were many ways to pretend to be honest about paying up to 80% of the first year’s premium as commission, but the provider’s were not charities.  The problems that the FCA are  finding today are legacies of the train wreck. Charges wrecked commission based  personal pensions sold  last century.

Various organisations pointed out that personal pensions were a rip-off so long as the commissions were so high. Even when auto-enrolment and  RDR were in place , there had to be a cap placed on pension policies ( 0.75% on AMC)  by the then Pensions Minister , Steve Webb. At roughly the same time the insurers escaped referral to the Competition Authority by accepting the IGCs  be put in place. Their job was to clean up the legacy.

Some have and the better IGCs like those that David Hare run have tackled some of the back-end loaded personal pensions in existence but not all. But for many insurers, the damage had irretrievably been done. Are we surprised that most people are confused and don’t trust pensions?

I give you this history lesson because I was involved at every stage in one way or another. I read the FCA’s announcement that it is going to have another go at cleaning up the trouble caused by commission and I get a sense of Deja-vu. That stalwart regulator Charlotte Clarke is in charge and if she reads this, I wish her well, she is good.

This is an account from Corporate Adviser, thanks Emma Simon (once again doing a good job of sprucing up a press release!)

The Financial Conduct Authority (FCA) has criticised pension firms for the “poor value”offered on some legacy products, and urged them to do more for savers in these plans.

The FCA said complex charging structures, older product design and weaknesses in firms’ data meant some pension savers are not getting as much value as they could.

These findings came out of a multi-firm review, following the introduction of Consumer Duty regulations.

The FCA acknowledged that it had identified some good practices – and urged all providers to follow these examples.

It said some unit-linked non-workplace pension providers are working to simplify and rationalise legacy products and funds, while also capping or reduced charges for customers in these older plans. It also pointed to firms that are comparing outcomes across different customer groups and products, and actively moving customers to better-value alternatives.

The FCA is now calling on all pension providers across the sector to consider this report and take on the good practice identified. The regulator is also engaging with firms on barriers they face in improving the value for customers, particularly in closed books.

While this review specifically cites non-workplace providers, there are clear implications for the workplace pensions market, particularly with regulatory changes forthcoming to enable providers in the GPP market to make bulk transfers from legacy contracts without individual member consents

FCA director of cross-cutting policy and strategy Charlotte Clark says: “Consumers in older products should not be left behind. Dome firms are already showing it doesn’t have to be this way. We want to see that progress reflected right across the market.”

The FCA says this work supports wider reforms, including targeted support and pensions dashboards, to help consumers get the most from their pensions.

It is also a priority under the FCA’s Pensions Regulatory Priorities and forms part of its broader work on modernising pensions and long-term savings.

This selling of policies with charges assuming people would pay for 30-40 years led to amazing things. I saw people “choosing” a retirement date of their 75th birthday when they started out at 4o. This was suggested by the adviser so clients had the flexibility yo pay 35 years of payments. Flexibility – don’t you love it!?

How many people fund pensions through to 75?  75 was regularly put on application forms to load the policy with back-end charges and pay the financial adviser maximum commission.

Well the people who bought in the eighties and nineties are now paying back end charges meaning they are getting little or no growth on their first two year contributions (which often was all they paid).

If you were 30 when I started out (1983) and I sold you a pension, you’ll be over 75 today. I hope you find the wreckage on the pensions dashboard, it would have been labelled General Portfolio, Target like, Trident Life , Porchester, Lloyds Life or Irish Life.

The regulators started in 1988 as FIMBRA and LAUTRO and became the PIA before rebranding as the FSA (only a letter from the FCA). Regulators tolerated commission as it was the only way that got pensions sold to those not in a proper company pension.

When this legacy appears on your dashboard, it will have a different name. The miscreant insurers including Hambros, Abbey Life and Allied Dunbar are all part of this legacy. They are all owned by a reputable name that act as  consolidators of what’s left. They hokld the kind of thing that the FCA are looking at. You were ripped off back then but don’t think you’ll be getting restitution, that’s the great thing about those policies – they are “long-term” – long term rip-offs.