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Cherrypicking hits low earners

The Government has been accused of backtracking over stakeholder and neglecting its original target audience after it unveiled plans to allow life offices to cherry-pick business.

IFAs and providers fear new DSS measures will give the green light to cherry-pick stakeholder business and lead to neglect of the low-earning group.

The measures, outlined in a letter to the ABI and Autif by DSS head of private pensions John Hughes, are designed to differentiate between trust-based schemes and those run by authorised managers.

The new rules state stakeholder schemes will not be permitted to restrict membership on grounds of financial status or contribution levels but will be allowed to ban mem bers on grounds of employment, emp loyer, trade or profession.

The letter also gives life offices three years to set up systems which allow for disclosure of charge values in cash terms, as opposed to introducing the requirement from stakeholder&#39s launch in April 2001.

The DSS says it will review if the restrictions enc ourage cherry-picking in three years.

Wentworth Rose managing director Philip Rose says: “It is another nail in the coffin for the hopes of stakeholder being a universal way for low-earners to save for their retirement.”

Scottish Equitable pensions development manager Steven Cameron says: “We know stakeholder sold to reasonably well-paid groups will be more profitable than to people who can only pay £20 a month. This encourages pro viders to cherry-pick and takes us further away from the Government&#39s target group.”

Chancellor Gordon Brown was expected to announce significant changes to the polarisation regime in this week&#39s pre-Budget report because of concerns about stakeholder&#39s distribution.

IFAs have questioned whether the decision, which flies in the face of almost all consumer groups&#39 views in the UK, will serve either the ind ustry or the consumer.

The move follows the delivery to the Treasury last week of the FSA&#39s verdict on the London Economics report.

Industry sources say that the Treasury feels it is necessary to change the regime to ens ure stakeholder&#39s success. They say it fears that existing broker distribution channels, particularly the tied side, cannot deliver on its flagship pension project.

The Government is exp ected to introduce some form of gap filling or white labelling in time to meet stakeholder&#39s tight timetable for launch in April next year.

But others believed the proposals would have to be put out to consultation. There were also thought to be plans for closer scrutiny of the disclosure regime.

Money Marketing will be closely examining the proposals to see if they have answered MM Poles Apart Campaign&#39s 10 questions.

Aifa director general Paul Smee says: “Whatever they do, I hope they will focus on the tied end of the market where the problems are and not the IFA market.”

Hulbert Financial Services IFA Jeremy Hulbert says: “It is going to fly in the face of the Consumers&#39 Association and the PIA. The last 12 years have been a complete waste of time and money in terms of protecting the consumer.”

Full details and a report on the pre-Budget statement will be available from Money Marketing&#39s website at www. moneymarketing.co.uk.

Comment, p31

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