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A Consumer&#39s View

Legal & General&#39s move to sign up a number of affinity groups to stakeholder-friendly group pension schemes, coupled with its introduction of tiered interest rates significantly below the stakeholder maximum, is making it very diff- icult for other life companies to compete.

L&G has effectively set a new benchmark for stakeholder charges and the effects will be felt throughout the pension industry.

It is offering stakeholder-friendly group schemes with charges which rapidly reduce from 1 per cent a year to 0.8 per cent once funds under management reach £25,000.

These fees reduce again to 0.6 per cent for funds of more than £50,000. These are modest levels and most small businesses will qualify for reduced charges.

But this means that, if other life offices want to compete, they will have to offer a similar charging structure.

Given that most are struggling to devise a product which meets the Government&#39s 1 per cent maximum stakeholder charge, it seems likely that many will choose not to compete. While this is good news for consumers on the charges&#39 front, it is bad news if it drastically reduces choice because other life companies choose not to enter the stakeholder market.

L&G retail pensions director Randle Williams says: “The maximum 1 per cent charge will start to bite heavily into an individual&#39s pot of money as their fund grows. In addition, if individuals transfer large sums of money into their stakeholder pension pot from other pension schemes, the effect will be immediate.

“Tiered charges which reduce automatically will encourage persistency in pension savings, ensure customers get good value for money and underpin the success of stakeholder pensions.”

Recent surveys show most life companies – far from following L&G&#39s lead and the FSA&#39s guidelines on material disadvantage – are busy signing up as many high-charging personal pensions as they possibly can before stakeholder becomes available.This cynicism does the industry no good at all.

Tiered charges well below the 1 per cent stakeholder maximum will make it even more difficult for other life companies to compete with L&G, which is trying to corner the market while there is little or no competition.

Adrian Boulding of L&G says: “We want market share and our aim is to reach critical mass as soon as possible.”

Clearly, L&G aims to price competitors out of the market.

Meanwhile, Chancellor Gordon Brown is busy making life even more difficult for himself on the stakeholder front. His indication that the minimum income guarantee will be increased from £78.45 for a single pensioner to £90 will only make saving in a stakeholder even less attractive for a bigger number of individuals.

The amount they would need to save in their stakeholder pension to provide benefits at the current Mig level is around £50 a month.

If the Mig is raised to £90 a week, the monthly saving in stakeholders would need to rise to around £64 a month just to provide benefits at the Mig level. Why would anyone want to do this if Mig bene-fits are free?

Even for families on average earnings of around £22,000 a year with monthly take-home pay of about £1,350 and mortgage repayments averaging around £468 a month for a £75,000 loan, saving £64 a month is way above the savings ability of most families with children.

At incomes of £15,000 a year and below, it is almost certainly impossible. Yet this is the income group which the Chancellor is encouraging to invest in stakeholder.

What this means in practice is that, unless the Chancellor and Tony Blair are prepared to bite the bullet and make stakeholder compulsory, it is unlikely that very many of those for whom stakeholder was designed will be inter-ested in saving in a pension scheme at all.

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