Of course, the very name stakeholder is imbued with the rhetoric of New Labour. Many providers will be going one step further and will be offering the option of having stakeholder funds invested ethically. What is ethical, of course, is relative.
The whole point of stakeholder and the criteria by which it will be judged a political success, is the extent to which it can attract people to save for their retirement. There are those who see this as ethical in itself.
Stakeholder's target audience are, by definition, people or organisations who are not currently investors, at least not through pensions. As such, it might be argued they could be more amenable to the idea of ethical investment.
Scottish Equitable public affairs manager Louise McVicker disagrees. While Scot-Eq will be offering one ethical fund as part of its stakeholder proposition, it will not be promoted over the other 32 funds on offer but will simply be there in the interests of comprehensiveness. She says: “I do not think the target audience of stakeholder is one that will go for ethical investing – it is quite a sophisticated business which will appeal to experienced investors.I cannot see it being a default choice in very many cases.”
While this may be debatable in the case of individuals coming to stakeholder, in the case of the employers there is one significant segment for whom ethical investment will be an important choice. This is charities and other similar organisations.
Holden Meeham director Richard Hunter says he has been rushed off his feet offering ethical stakeholder to precisely this kind of client. He points out that some employers will be keen to make sure the investment profile of the pension is in accord with the principles of the organisation.
Hunter points out the need for advice in this area. Not only is the fundamental advice on stakeholder required but specific guidance is also needed around the issues of ethical investing. These include what ethical screening the clients expects, whether that should be active or negative, what range of ethical funds are on offer to select the exact ethical mix from the menu available.
Holden Meehan says it was the first to launch an ethical stakeholder product, which it developed together with Friends Provident. Since then, many providers have come online with a least some kind of ethical fund choice to their stakeholder selection.
Norwich Union has perhaps the most comprehensive offerings in this sector, offering a range of ethical funds for stakeholder. The range not only allows a spread of ethical concerns but also offers a choice on the level of investment risk.
NU director of pensions development Jerry Barnfield says it offers one of its “sustainable future” funds as part of its core stakeholder proposition. There is, however, the option of six ethical funds, which Barnfield says has been welcomed by IFAs.
He says: “We have gone out of out way to meet the Government's objective in providing access to socially responsible investments. It is a key part of our stakeholder proposition.”
Ethical Investment Research Service head of marketing Karen Eldridge points out there is no compulsion for individual stakeholder schemes to disclose an ethical stance, unlike occupational pensions, where the Pensions Act last year required trustees to declare whether funds were managed according to ethical criteria. But Hunter points out that, under the stakeholder regulations, providers themselves have to declare what social, environmental or ethical concerns, if any,are applied to their stakeholder contract.
Like many others, Eldridge thinks it is a shame that the now infamous stakeholder decision trees do not include a question about an ethical choice. Last week, Friends of the Earth attacked the Government's stakeholder publicity on much the same gro- unds, criticising it for not making people aware that they could choose an ethical stakeholder pension.
A different kind of ethical stakeholder is offered by Massow Rainbow, which specialises in advice to gay men and women. Its Freedom Pension, offering a choice between Friends Provident and NPI funds, is designed not only to take into account the usual ethical criteria but also to take advantage of the fact in stakeholder partners, whether gay or unmarried, can for the first time have the same pension benefits as married couples.
The TUC has also developed a stakeholder pension scheme, available to people who are not members of the union, which will feature an ethical fund of Standard Life as one of the choices.
The exact take-up of the ethical option in stakeholder will become clear in time.But a survey carried out by Eiris and NOP in 1999 showed that just under three-quarters wanted their pension fund to have an ethical policy. Well over 39 per cent wanted the ethical investment route even if it affected the performance of their fund.
According to Eiris, the total amount invested in ethical funds is over £3.3bn. The London Stock Exchange has launched FTSE4Good indices, which will start in June and will identify the companies with the strongest ethical and environmental performance.
Friends Provident, who pioneered the ethical investment bandwagon with the launch of its Stewardship Fund in 1984, has now gone so far as to trumpet an ethical dimension to those funds which are not specifically designated as ethical. Through what it terms “responsible engagement overlay”, fund managers would engage in with companies to encourage best practice.
Whether stakeholder is a success, and whether people think it good or bad, at least there will be the option of placing the pension in a fund designated as ethical.