The Government's flagship pension project has finally been launched after a lengthy and controversial development process. The introduction of price capping amounts to arguably the biggest intervention in the free market of this Government's administration and the price-capping features will doubtless be noted by other professions across the economy.
The launch comes just as IFAs are pausing for breath after the close of the Isa season, and the two-stage introduction of stakeholder means the industry and the Government has two distinct opportunities to heighten public awareness of the product.
Most IFAs are seeing little change in the first days of the stakeholder era as they have been talking to clients about stakeholder products for some weeks now. But IFAs believe the real take-up of stakeholder will begin when the threat of a £50,000 fine looms over employers' heads.
IFAs are finding, not surprisingly, that the public response to stakeholder varies according to local demographics and the make-up of their client base.
Rural IFAs are reporting low interest levels as the majority in their communities are self-employed or work in very small businesses.
But even in urban areas with higher concentrations of workers employed in large concerns, some IFAs are saying interest has not been what the Government will have hoped for.
IFA Financial Dimensions principal Fari Serajian says: “Employers seem interested in it but from what I've seen employees are just not interested if there is not going to be any contribution from employers. The companies seem happy to set up a scheme, but as soon as you ask whether employees want to pay, they don't want to know.”
Serajian says: “Eventually, the Government will realise you have to force people to make it work. After the election the Government will make payment into a personal pension compulsory. There is no other choice.”
Featherstone Independent Financial Services partner Jean Featherstone agrees, and the notion of compulsion as the driving force for any change seems to be a view a lot of IFAs take.
Featherstone says: “So far it has been a bit of a damp squib. We haven't had any enquiries from the general public. Some employers have enquired, but those who know they can wait until October will do so.”
But this apathy has not been the experience of all IFAs. John Carmichael Financial Services principal John Carmichael says: “I thought employees would be less interested than they have been. I have found that employers are less interested than employees. I have given seven presentations from which I have got four schemes signed up. About 50 per cent of the employees from those four businesses have shown an interest in making contributions themselves.”
If the Government's goal is to make all workers provide for their own retirement through stakeholder pensions, then it seems compulsion is going to be required all the way down the line. If many employers are only going to set up stakeholder schemes when they have to next October, then it follows that making employees take out stakeholder pensions will require compulsion.
Bankhall member C&J Independent Financial Advisers partner Barrie Jeffery says: “People are putting it off until after the election, and then after the summer holidays. Come September there will be a mad rush. But compulsion will require someone brave enough to stand up and say 'you've got to save for your retirement'. It will be an extra tax of around 15 per cent, which is going to be a problem for any Government.”
Whether stakeholder will be taken up before the threat of the October deadline will reflect the success of the media campaigns of both the Government and the pension providers.
The sheepdog TV commercials seem like a distant memory and there has been little publicity since.
IFA Chambers Morgan James director Marlene Shalton says: “I don't think the stakeholder advertising campaign has been successful. There were just a few adverts about dogs. Many of my clients had not heard about it. If they want the product to succeed, the Government and the product providers will have to do a lot more advertising, given the apathy of the general public.”
Some IFAs believe the interim period between introduction in April and compulsion in October will lead to a period where customers will buy stakeholder pensions and then want to change out of them if their employer sets up a scheme.
E Farley & Son (Life & Pensions) director Maurice Dowcra says: “If an individual asks me about a stakeholder pension, the first thing I will ask is how many people work for his employer. If he says five or more, I will tell him to hold on.
“I am not going to set up a pension where the employer might later set up a scheme where he makes a contribution. The industry is in a muddle and every IFA should be nervous about setting up a stakeholder pension for an individual.
'I would advise doing nothing until you know what your employer is doing, apart from trying to get to the employer and sell them a scheme.”
Morgan Nevill managing director Mike Nevill says: “Some clients are asking why they should pay our fees for advice when the banks will set it up for nothing. That is fine. I will just go back to them in two years time when the Government brings in compulsion and you have to put money in, and compare performance. I will then get them to transfer to a new company. As the funds will have some money in, it will be worth doing.”
But Torquil Clark pensions development director Tom McPhail does not see a problem. He says: “The employee can stop or transfer the stakeholder pension without penalty. He might not like what the employer puts in front of him. If he has enthusiasm to set up a stakeholder pension now, he should do it, but the IFA should certainly consider whether an employer's scheme is going to be set up.
McPhail is positive about the opportunities for stakeholder. He says: “Stakeholder is one of the best things to happen to IFAs. Any IFA wanting to get into the employer market has the best introduction they are going to get. I like stakeholder.”