Elaine Turtle, director of DP Pensions, has criticised new FCA rules coming into effect in April 2017.
In six months’ time all Sipp firms will need to have changed their illustration systems so that they show the margin they retain on cash holdings.
The change has arisen from the regulator’s pensions reform paper PS16/12.
Ms Turtle, the Treasurer and a Committee Member of AMPS, writing for sister website Sipps Professional, said: “The decision by the FCA to require Sipp illustrations to disclose the amount of interest retained as a fee within the illustration seems nonsensical. It isn’t a fee or charge and so shouldn’t be shown on the illustrations as it means the illustrations don’t provide the comparison that is so important for the adviser and his client.”
Ms Turtle, who has worked in financial services for over 30 years and has held a number of senior management roles within the self-administered pension sector, said the debate on retained interest has been ongoing for many years.
She said: “It is based, in part, on the fact that commentators feel that the illustrations simply don’t help compare product against product. And on the other, those that believe the reason that providers don’t want to reveal the amount they retain is because it is what keeps them solvent.”
The FCA has said the majority who responded to a consultation agreed with the proposal to clarify that Sipp retained interest charges should be included in projections and charges information.
The regulator stated in its papers: “We do not consider that the reasons put forward for not proceeding are sufficiently robust. While cash accounts within Sipps may be transactional, they still form part of a packaged product for which there are disclosure requirements.
“And these disclosure requirements generally require all charges to be disclosed where these result in a drag on investment. While Sipp retained interest may be implicit, rather than charged explicitly, our figures indicate that in aggregate it is a drag on returns of around £60m per annum.
“Therefore, in the same way as for any other asset, projections of future benefits from cash accounts should be projected at the gross rate and take account of future charges by using an appropriate figure for the retained interest charge.”