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A season for stakeholder

Stakeholder&#39s first birthday arrives at the end of the Isa season, which could be a slower season this year.

Some advisers believe we might see a stakeholder season with people taking advantage of the tax allowance offered by the new pension.

Roger Sanders Associates principal Roger Sanders says he will be surprised if there is not a stakeholder season comparable with the traditional rush for Isas. “I think we will see stakeholder being sold as a second kind of Isa. There is evidence that husbands are looking at stakeholder for their non-working wives. There is a wall of money out there waiting to go back into the market as soon as conditions seem safe,” he says.

Hargreaves Lansdown pension development manager Danny Cox thinks a stakeholder season is inevitable, pointing out that for many it is an additional tax allowance to be used by the end of the tax year or lost.

Torquil Clark head of research Tom McPhail thinks a stakeholder season is a probability but he does not think the effect will be as marked as with Isas.

Others, such as Informed Choice managing director Nick Bamford, think there will be no stakeholder season. He says things have been moving in the opposite direction and during the last decade he has witnessed a flattening out of pension business over the year. “You used to see a rush at the end of the fiscal year to use allowances but not so much now. Anyway, stakeholder is just a private pension by another name. There is no reason to cram it in.”

Providers are keeping a watching brief. Norwich Union head of individual pensions Ian Buckle says it has not yet decided what it will be doing to market individual stakeholder in the spring but predicts that stakeholder&#39s first anniversary will be accompanied by a flurry of advertising.

He says NU is targeting IFAs with ads and direct mailings on carry-over entitlements and stakeholder. He points out this has contributed towards a stakeholder season effect. “There is already a bit of a closing-down sale with the end of carry-forward,” he says.

The main clients for the stakeholder season are expected to be the same relatively unsophisticated and wealthy people who buy Isas. Hargreaves Lansdown is aiming its stakeholder at non-working spouses and people wanting to make provision for children and grandchildren.

As far as stakeholder is concerned, the marketing push and public debate have been overwhelmingly directed at the group market and employers.

A stakeholder season would transfer the focus to the individual market, which the ABI figures show is where the money is now going.

The Government has been remarkably unconcerned about the number of employers which have missed the deadline and the ABI figures for group stakeholder sales have been unimpressive.

Most people agree that stakeholder is missing its intended market and has quietly shifted away from its original target market.

Bamford says: “It has just not hit the button for workers earning between £10,000 and £20,000. I think that compulsion is more on the cards than it has ever been and the providers are sitting on their hands waiting for it.”

During stakeholder&#39s gestation, there was talk of it becoming a product for “doctors&#39 wives”. A stakeholder season could give some indication of this.

Cox points out that it is difficult to make the target market take up the pension just because it is low-cost and tax-efficient.

Perhaps the clearest example of stakeholder&#39s mutation from a no-frills pension for people on modest incomes to another string to the IFA&#39s tax planning bow is the success of immediate vesting stakeholder plans.

McPhail focuses on this as a particularly interesting opportunity. Clients over 50 can have their contribution of £2,800 grossed up to £3,600, from which they can take out £900 tax free and purchase an annuity. According to McPhail, clients can get guaranteed returns of over 10 per cent at the same time as hedging against longevity.

Sanders, McPhail and Cox all refer to Standard Life&#39s immediate vesting stakeholder, which comes as a packaged application – you send off your initial payment and you get your tax-free sum and annuity in return.

It is possible to do this with any provider but exercising your open market option becomes less interesting when the amount of providers willing to sell you an annuity for such a small amount dwindles to a mere handful of names.

As stakeholder becomes a tax-efficient commodity, the question of fund selection arises, in the same way as with Isas. The challenge for IFAs, says Sanders, is going to be selecting the correct funds and making sure appropriate wrappers are available.

McPhail points out that stakeholder can offer something that Isas cannot – the with-profits option, which could prove attractive amid consumer insecurity and stockmarket falls.

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