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CGU sparks a free for all

The revelation that CGU is to charge nothing for its pre-stakeholder

pension until April next year has left the rest of the pension industry

quaking in its boots.

It does not matter whether the move is a gift or a gimmick, it confirms

the big boys are in stakeholder for the duration and they do not care how

much it costs to get business on the books.

It is just a question of how many other providers will be forced to follow

the loss-leading example of CGU – or stay out of the market altogether.

The contract, Your Pension @ CGU, is a no-charge pension until stakeholder

comes into effect in April next year.

From then, stakeholder with advice will cost a maximum of 1 per cent of

the fund value a year, stakeholder without advice a maximum of 0.6 per cent

ofthe fund value and stakeholder overthe internet a maximum of 0.7 per cent

of the fund value.

The charge will reduce accord-ing to the size of the fund, with the

biggest discount of0.2 per cent beinggiven once the fundhas reached

£50,000.

Sedgwick IFC research supervisor Jo Phillips says: “I think it is a

fantastically charged contract and everyone is going to have to follow suit

to survive in this market.”

Chase de Vere investment marketing manager Ian Millward says: “On the face

of it, it looks like a very clean product from an ambitious provider and I

think others will follow suit.”

But there is a price to pay for launching such a contract and it is not

just the explicit cost of waiving the charges until April next year.

Millward says for stakeholder to work it has to be a mass-market product.

“CGU are saying they want to be big market players and they look prepared

to pay to achieve it,” he says.

Phillips says: “They are buying business but they can afford to do it.

They will get the money in and as long as they keep the clients happy they

will make money eventually.”

However, it could be 12 years before it makes any money, according to a

source within CGU.

CGU life sales & marketing director Peter Hales denies this, saying the

contract will be profitable before then. “I do not believe it is going to

be a 10-year slow burn. We are in stakeholder to make a profit and thekey

issues are distribution andvolume,” he says.

Phillips says the main issues will be CGU&#39s systems and fund performance.

“It is going to be down to performance and thesystems are going to have to

be really slick,” she says.

Scottish Mutual pensions development director Leslie Gray says: “Since the

charges on the early version of stakeholder are not that great, waiving

them is not a great deal. It would be more appropriate to look at the funds

which will affect the eventual cost of the contract.”

But Millward says stakeholder is not about sophisti-cated investors who

will beconcerned about performance and servicing.

“Apathy is a huge part of everything in financial serv-ices so once you

have managed to attract the business, most of it willstick because people

do not havethe facility to review their investments,” he explains.

Someone who stuck with CGU and its managed fund over the last 17 years

would have achieved better than average returns on their money as the

managed pension fund has consistently outperformed the sector average.

But as Gray puts it: “You never know the price of a contract until you

stop it.”

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