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Commentary – Peter Hayles

T here has been much talk about stakeholder pensions since their launch in April 2001. Much of this has focused on the 1 per cent price cap and the effect this has had on the product, sales and its distribution.

Norwich Union&#39s position on price caps is clear. We do not support the principles of price caps. At the price cap of 1 per cent on stakeholder, in many business categories, the product is uneconomical to market widely, especially to those who it could be argued need it most – that is, those who do not save for their future.

As a result, we and some other providers have concentrated most of our efforts towards the group stakeholder pension market where it is easier to make the economics stack up and achieve the economies of scale necessary to make stakeholder work.

In June this year, we finally received the clarity that the financial services industry had been waiting for – what the price cap for stakeholder would be for the future.

The outcome of 1.5 per cent for the first 10 years is not everything that we would have wanted but it is a step in the right direction and certainly better than 1 per cent. The move also showed that the Government had clearly listened to much of what the industry had said.

Equally as important was the announcement of the proposal for the basic advice regime under which stakeholder products will be sold in the future.

Now that these two important pieces of the jigsaw are pretty much in place, we have been able to complete a full review of our individual stakeholder product and pricing levels and we can set out where we see the individual pension landscape from a Norwich Union perspective.

We are of the opinion that the new charging structure for stakeholder pensions at 1.5 per cent will support the cost of selling the product through the proposed basic advice process and we will be supporting the distribution of this. The higher charging structure can support the basic advice process but we do not see this as being able to support the full advice process for lower levels of premiums – that is, those below £200 a month.

As a company, we believe that people should get full or basic financial advice, depending on their circumstances, when they are looking at planning for their retirement and we want to be able to offer a pension product whatever level of advice people choose. We also believe the provision of advice is essential to help the pension market grow. To ensure that we cater for people going through the full advice process we are working towards launching a new “non-stakeholder” charged product which will be available in early 2005.

We are currently in the development phase of the product and working on the details and therefore not able to confirm yet what the charging structure will be.

However there will be a level of flexibility in the charging structure to enable the choice of whether the advice is to be paid for through commission or fees.

The new product will also offer additional features such as a wider choice of funds for clients and their advisers to choose from.

As well as ensuring that we offer a new product to support the full advice process, we have to take the necessary steps to ensure that our pricing strategy on individual stakeholder pensions reflects the lower levels of advice of the basic advice process and therefore the lower associated costs.

As a result, we announced at the beginning of the month, that commission levels would be reduced by two-thirds on individual stakeholder-charged pension products. We expect other providers to follow suit as they review their pension strategy.

The group pension market will remain our key focus but we intend to keep a strong foothold in the individual pensions market in both the basic and full advice regime. The launch of our new product in 2005 underlines this commitment. For basic advice, we will have available individual stakeholder pensions and for customers seeking full advice we will have the new product designed to support the cost of full advice.

Norwich Union intends to continue to play a major role in ensuring that quality products and advice are available for people to save for their retirement.

The challenge of getting people to save was starkly illustrated last week with the publication of the first Pensions Commission report showing that millions of people are heading for a poor retirement – fuelled by the fact that they are living longer.

Clearly, there will need to be major changes in the future pension world as we look for a pension landscape that better ensures that people are adequately provided for in their retirement.

Peter Hales is sales and marketing director of Norwich Union Life

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