7.13 In which case the current uncertainties would remain as they are, and employees would remain in a weaker position to make optimal decisions about their pensions and about work-related insurance cover.
Non-legislative options
7.14 Although FSA guidance can help interpret the boundary of financial services regulation it cannot define the law. Guidance cannot mitigate the effects of legislation which specifies the boundary of regulation in a confusing or uncertain way.
Legislation
7.15 Paragraph 7.3 explains which legislative changes would be used to address the objectives set out in this regulatory impact assessment.
Risk Assessment
7.16 These changes aim to address the risk that pensions administrators might not be providing employees with sufficient information to enable employees to form optimal decisions about how much to invest in their pensions, and the risk that employers might not be providing employees with sufficient information about work-related insurance cover – both the type and levels of group-based cover which the employer should take out on employees’ behalves, and the type and levels of individual cover which employees themselves may wish to take out to complement any group-based cover provided by the employer.
Costs and Benefits
Costs
7.17 These changes are deregulatory and do not generate new or additional regulatory costs, because their purpose is to clarify and simplify the boundary of financial services regulation, thereby reducing uncertainties and reducing the perceived need for certain financial promotions to be approved or issued by persons authorised by the FSA.
7.18 If the new exemptions are used by employers and by their pensions administrators there may be resource implications in terms of the staff time and resources taken to provide employees with information about company pension schemes and about work-related insurance products.
Employees may also have to devote time to considering the additional information they receive. It is difficult to quantify these costs upfront, however, as they would depend upon the extent to which the new exemptions are used. These costs would not be imposed as they would arise from employers and pensions administrators making use of new regulatory freedoms, and they are only likely to do so when the benefits of doing so outweigh the costs.
The costs of understanding and adhering to the new exemptions should be minimised as they have been drafted in a clear and simple way, and will be accompanied by guidance.
Benefits
7.19 Employees should receive more information about company pension schemes and about work-related insurance cover, and this should enable them to make better-informed decisions about how much to invest in their pensions, and about what types and levels of work-related cover they should benefit from and take out.
7.20 Employers and pensions administrators should benefit from being able to provide information to their employees without needing to take legal advice on whether particular communications constitute financial promotions, and without needing to secure the approval from FSA-authorised persons for communications which are considered to be financial promotions, or seeking FSA-authorised persons to issue these promotions on their behalves.
Small Firms Impact Test
7.21 These changes apply to all employers and to all (unauthorised) pensions administrators. Clarifying the boundary of regulation and reducing uncertainties in this way may benefit smaller firms relatively more, as they are less likely to have compliance specialists.
Competition Assessment
7.22 No impact is foreseen on the position of individual firms, in the sense that the changes apply to all those doing particular activities and are not specific to particular individual firms.
By placing employers who have contracted out their pensions administration to third parties in the same position as those who have not, these changes should place all employers in more of a similar position than is currently the case. In practice it is expected that employers and pensions administrators will provide generic advice to employees, and will refer employees to FSA-authorised persons when they are seeking specific advice relating to individual circumstances.
As such these exemptions should lead to workplace financial promotions complementing the activities of FSA-authorised advisers, rather than employers or pensions administrators somehow competing unfairly against them.
Enforcement, Sanctions and Monitoring
7.23 Compliance with the requirements of financial services regulation, including policing the regulatory perimeter, will continue to be monitored and enforced by the FSA.
Implementation and Delivery Plan
7.24 These deregulatory changes will be implemented via the adoption of new secondary legislation which amends the Financial Promotion Order. This is expected to come into force on the common commencement date of 1 October 2007. Employers and pensions administrators will also benefit from revised guidance explaining how the new regulatory freedoms apply.
Post-Implementation Review
7.25 The impact of these changes will be kept under close review, including to consider whether these changes are having any unintended consequences, and whether they are having their desired effects.
Summary and Recommendations
7.26 Last year a new exemption was added to the Financial Promotion Order to enable employers to make financial promotions to their employees in relation to group personal pension schemes and stakeholder pension schemes. The purpose was to provide greater certainty that these sorts of communication do not need to be approved or issued by FSA-authorised persons.
A number of companies have outsourced their pensions administration, however, and these pensions administrators hold the knowledge and competence required to furnish employees with the detailed information they seek. These changes expand last year’s exemption to cover third party pensions administrators.
7.27 Last year’s exemption applied only to group personal pension schemes and to stakeholder pension schemes. Employers may experience similar uncertainties about their ability to communicate with their employees about other work-related financial products, in particular work-related insurance cover. These changes expand last year’s exemption to cover such work-related insurance products.
Chapter 1 Extending Employers Freedom – Introduction
Chapter 2 Responding to the Consultation
Chapter 3 FSMA Two-Year Review Exemption
Chapter 4 Pensions Promotions to Employees
Chapter 5 Promoting Insurance Products
Chapter 6 Employee Share Schemes and Plans
Chapter 7 Partial Regulatory Impact Assessment
Chapter 7A Options – Legislate or Not
Annex A Current Pensions Exemption
Annex B Current Insurance Exemptions
Annex C Proposed New Legislation
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