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Only one third of all employers are aware of the implications of the Retail Distribution Review (RDR) and the planned regulatory changes that come into force on 31 December 2012.
These changes are likely to impact many employee benefit arrangements. This will include the removal of commission from investment products such as pension arrangements, and outlaw commission payment from pension providers to benefit consultants.
Although the legislation is centred on the financial services sector and consumers, it will have implications for employers.
Employers will need to seek assurances regarding their benefits advisers as to their business model beyond RDR. Knowing the processes many employers need to go through to select new providers, and the timeframe for the impact of this legislation, employers need to start looking at their providers very soon.
The way in which financial advice is delivered is set to dramatically change as a result of the legislation. As such it is vital that all employers are aware of the implications, seek assurances and make the appropriate changes for their business and their employees.
The new legislation focuses on several issues, providing for:
- Greater clarity in the way advice is offered to consumers;
- Independent advice that is unrestricted and unbiased;
- Tied and multi-tied advice that will need to be made clear to consumers;
- Raising professional standards of all advisers in order boost consumers confidence in the industry;
- Clarity in how advice is paid for to remove commission bias and provider influence.
Nobody can deny that now is the time for some advisory firms to increase their professionalism and improve the services that they provide to clients.
The RDR legislation together with the forthcoming impact of the National Employment Savings Trust (NEST) provides a limited time frame for some employers to review their employee benefit arrangements.
Many businesses have already taken steps to review their pension benefits and as a result have been able to improve on the terms offered by the providers whilst ensuring that they are fully compliant and well placed in advance of the forthcoming legislation changes.
One example of this is an engineering business that operated a Group Personal Pension Plan which had been in place for 5 years. The Plan had been established by an adviser who was remunerated by way of commission from the product provider.
The employer was concerned with the impact of NEST, RDR and the removal of default retirement ages which they felt might make succession planning within their business difficult. They did not want to increase their employee benefit spend to any degree.
A review of their current pension provision focussed on ensuring compliance with RDR and NEST whilst improving the overall offering to both the employer and employee. Employees were being charged a 1% annual management charge within the existing Plan. Improved terms were negotiated as illustrated in table 1.
The outcome of the review was that the employer received advice relating to auto-enrolment from an RDR compliant adviser whilst the employee receives a healthier pension as a result. This, in conjunction with improved communication systems, made it more likely that employees would accrue a good retirement income by age 65 and thus aided the businesses in terms of succession planning.
In this example, the entire process was undertaken without any additional cost to the employer. It is unlikely that this type of improvement would have been achieved after RDR implementation at the end of 2012.
CS Financial Solutions Limited is a wholly owned subsidiary of the Charles Stanley Group PLC, authorised and regulated by the Financial Services Authority.
For further information about how the RDR legislation may impact you please contact your usual consultant or Naveed Riaz on 01923 294313.
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