View more on these topics

A long hot summer with the ground rules

Christmas 1998. Log fires burning in an open hearth. Tinsel and baubles on


a brightly twinkling tree. A comforting glass of mulled wine. One year to


the 21st Century. And a good book – the Government&#39s Green Paper on the


future of pensions in the UK. It was a Christmas as never before.


Of course, we knew about stakeholder. It was in the manifesto. But the


surprise – and aren&#39t surprises nice at Christmas? -was the new concept for


state pension provision.


Out went the long established approach of compelling employees towards the


final-salary structure of Serps.


In came an acceptance that the state&#39s key role is ensuring the lower-paid


have better financial provision in retirement. The state scheme would be


the redistributive mechanism to achieve that objective. The only downside


to this sensible concept was the creation of a new TLA (three-letter


acronym) – S2P.


The Green Paper also gave greater emphasis to private provision, with the


overall objective being to reverse the current split between private and


state provision from 40 per cent private and 60 per cent state to 60 per


cent private and 40 per cent state. Stakeholder and occupational schemes


would deliver a positive result for people in the private sector.


Eighteen months of continuous consultation later, the Government&#39s


scorecard has some notable successes. The charging structure of personal


pensions was transformed without a single word of primary legislation – how


many IFAs now sell low transfer value personal pensions in the wake of the


FSA&#39s Regulatory Update no 64?


In addition to changing the charging structure, the price of personal


pensions has come down significantly. Prices have only been able to drop


in anticipation of reduced costs arising from the much greater use of


e-commerce.


To that extent, the Gov-ernment has been lucky in pushing to a charging


level which would not have been attainable a few years ago.


Commission levels in the increasingly competitive group market have been


falling for a few years. IFAs have responded strongly to the promotion of


GPPs into a widerrange of employers than had previously been reached.


The market grew by 25 per cent during 1999 (in newAPE terms), following


pre-vious double-digit growth.


Consultation has seen many of those schemes provide exemption for their


employers from having to offer stakeholder and the acceptance by Government


that good GPPs can have just as much merit as occupational schemes in


helping consumers in the UK towards a better retirement.


The Government&#39s newfound willingness to embrace GPPs was a very welcome


change and one which the financial services industry must ensure passes the


three-year review.


With IFAs encouraging employers to contribute 3 per cent or more to an


employee&#39s pension pot, there is everyreason why GPPs should be successful


as measured against the Government test of imp-roving real – and


value-for-money – pension provision.


A key issue for consultation was, of course, the provision of advice.


Could the cost of advice be loaded into the stakeholder product?


The “no” from the Government was entirely consistent with its drive for a


commoditised stakeholder product. But it opens up scope for the sale of a


personal pension which can allow for advice costs – and do so more


tax-efficiently through tax relief and potentially VAT differences.


Of course, both the price and commission will still be lower. And the


market will have room for both stakeholder and personal pension products,


depending on the business plans of the IFAs who will still be key to


delivering success in significant sections of the market.


The “no” to advice also opens up the risk of people making the wrong


decisions because they have not taken advice. The catalogue of consumer


risks, starkly drawnin the FSA&#39s discussion document on decision


trees,makes that plain.


It must be tempting to downplay those risks to deliver a positive result


for the majority of people but the needs of a significant minority also


need consideration.


It would be wrong to be gloomy about the changes being made at present.


The draft tax regime, for example, represent a major development from the


Government which will, for the majority of consumers, deliver a simpler,


less expensive administrative environment – again helping to deliver lower


production costs.


The five-year presump-tion and cessation rules inparticular will also


deliver significant tax planning opportunities, especially for


high-net-worth clients paying over £3,600 per annum, and leading to


advice well worth paying for.


It is easy to feel that, after 18 months of active consultation, we should


now know all the ground rules. But we are far from that yet.


At the time of writing, the tax regime is still to be confirmed, with the


long awaited policy decision on concurrency still to be announced.


Most significant of all, the selling regime which will apply is the


subject of anFSA discussion paper ahead of an FSA consultation paper in the


summer.


Stakeholder will undoubtedly launch in April 2001 and is on track to do


so. But is it right to try to deliver the entire regime by October 2000? To


have consultation on something as crucial as the selling regime in such a


short timeframe can scarcely leave sufficient time to make the consultation


real.


Deferring the ability to sell stakeholder until January – linked to a


Government consumer campaign on the value of saving for pensions generally


– could represent a more sensible approach, with significantly less risk


of launching into a flawed environment.


Either way, it will be a long hot summer.

Recommended

Investment View

You may have gathered from my silence on the subject that I did not attendthe PIMS conference this year. Recently, it has unfortunately clashed withan important corporate event. But not to be denied an opportunity toindulge in a little ocean madness, those kind people at Richmond Eventsinvited me to the Communication Directors Forum. I have […]

Julian Gibbs

Canada Life has a new idea which, in effect, enables pensioners to avoidbuying a lifetime annuity until they are 85 rather than the Government&#39smandatory age of 75.At 85, annuities are excellent value for money, especially if you live to100 or more like the Queen Mother. The £100,000 purchase price willpay around £22,000 a year for […]

The business is out there

Don&#39t despair, the work is out there,you just have to look carefully. SomesmallerIFAs seem dismayed at the potentially adverse impactof stakeholderpensions on their business.They point to the much reduced capacity of commission under stakeholderwhen compared to personal pensions and correctly infer that it will be verydifficult to justify selling a new £100 per month personal […]

Independent View

I have been suffering from an enforced absence from the office due to theunwarranted attentions of a man with a knife. A surgeon to be precise.Being confined to the house for a few weeks gives plenty of time forcontemplation and tends to allow the mind to focus on both the future andthe past.What it also […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com