Open letter to pensions minister Ian McCartney
Stakeholder pensions have now been with us for two-and-a-half months and
early indications are that the Government's grand vision of pension
planning reform is having mixed fortunes.
Stakeholder pensions have undoubtedly promoted competition within the
personal pensions market and by and large they have improved the terms on
which pension plans are sold to consumers.
The impending introduction of S2P will also significantly improve the
second-tier state pension benefits paid to low-earners.
For these measures, the Government deserves to be congratulated. Although
still relatively new to your post, you will no doubt be aware that one of
the principal stated aims of the December 1998 Green Paper on pension
reform was a shift in pensions funding from 60 per cent state and 40 per
cent private sector to 60 per cent private sector and 40 per cent state
In order for this to happen, it is not enough that we make available
simple low-cost products. It is also important that people actually buy
The experience of the market to date is that people are not and probably
will not be buying stakeholder pensions in significantly greater numbers
than was the case for personal pensions pre-April 6, 2001. Many employers
have now designated a stakeholder scheme but as yet the level of employee
take-up is, across the industry, very low.
There is one single measure which could be introduced which would have an
imm-ediate and lasting impact on the level of private pension funding in
the UK. Quite simply, every single employer designated stakeholder pension
scheme should be required to have an authorised regulated individual
appointed to it.
This independent financial adviser would perform two very useful
functions. On the one hand, he/she would be available to communicate with
scheme members and to promote the benefits of pension scheme membership.
In addition, they would be also available to provide advice to employers
on the man-agement, admin and promotion of the scheme.
This latter point is an important one and one that seems to have been lost
in the celebration of the simplicity of stakeholder pensions.
Designating a stakeholder scheme is straightforward but running a pension
scheme on an ongoing day to day basis is not. Employers are going to need
support and advice from the pension industry if the introduction of a staff
pension scheme for their employees is to be a force for social good.
The margins on stakeholder are so narrow that there is going to a bare
minimum of support from product providers and, without the support of an
appointed IFA, the introduction of stakeholder pensions may become little
more than a wasted opportunity.
Head of pensions,