Personal pension justification rule retained

The ‘RU64’ rule, which requires firms to explain why a personal pension is more suitable for the customer than a stakeholder product will remain in force, the FSA has confirmed. The industry had argued that the rule put a price cap on personal pension plans, which meant that they became unviable to distribute. Stakeholder alternatives are subject to a maximum charge of 1.5% a year in the first 10 years and 1% per annum thereafter. Consumer groups countered that low confidence in financial services and the need to protect customers, borne out in the poor standards of advice that the FSA has found in its thematic work, justified keeping the rule. The FSA, in feedback statement 07/1, says that the industry has discovered a solution to the distribution cost issue with the development of group personal pensions (GPPs); provided through the workplace, normally without full advice, they include an employer contribution and compare favourably in price to stakeholder schemes. The regulator also observes that from 2012 all employees will be automatically enrolled in a Personal Account or an exempt scheme that will require contributions from both employers and employees; this move, since, it is likely to discourage sales of individual personal pensions has not influenced the decision to keep RU64, says the regulator.