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An IFA for every employer would boost take-up of private pensions

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&#39s 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

funding.

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

them.

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.

Thomas McPhail

Head of pensions,

Torquil Clark,

Wolverhampton

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