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Concurrency flows towards IFAs

The Inland Revenue has finally given the go-ahead for up to eight million


people with occupational pensions to pay into stakeholder schemes


simultaneously.


The reaction from the pension industry to the decision to permit partial


concurrency has been mostly positive, with providers claiming a small


victory in the ongoing wrangle with the Government over the shape and scope


of stakeholder.


The latest announcement means that occuptional scheme members earning less


than £30,000 will be able to save up to £3,600 extra a year in


stakeholder. The eligibility threshold means around 90 per cent of savers


in occupational schemes will qualify for stakeholder, according to the


Government.


A joint announcement from Social Security Secretary Alistair Darling and


Treasury economic secretary Melanie Johnson declared the ruling as


excellent news and “another step towards the simplification of pension


schemes”.


So why are many in the IFA community anticipating a surge in demand for


expert advice from occupational pensionholders in the run-up to


stakeholder&#39s introduction in April 2001?


Torquil Clark pensions development manager Tom McPhail says: “It


potentially creates more work for IFAs, with more people requiring


guidance. This is beyond all scope of decision trees and the regulation of


supervisors at stakeholder helpline call centres. It backs up the


suggestion we made at consultation for all decision trees to have a default


IFA for when advice is needed.”


Scottish Equitable pensions development manager Steven Cameron says: “It


is being said that the new regulations will reduce the likelihood of


misbuying because you do not have an either/or situation, you can have


both. But IFAs will need to go back to existing clients and advise them on


the new option.”


Axa Sun Life senior technical manager Tony Toller-ton says: “Anything that


leads to IFAs needing to revisitold clients is good. In particular, clients


with FSAVCswill need to be looked at.”


The likely death of the already narrowing market for AVCs and


free-standing AVCs is one of the biggest implications emerging from the


concurrency announcement. The facility to draw a quarter of the stakeholder


fund as tax-free cash at retirement and the fact that earnings only have to


be proved every five years means stakeholder will be deadly competition to


AVCs and FSAVCs.


Consultant William MMercer describes the announcement as the end for AVCs.


Mercer Worldwide partner Peter Thompson says: “For the majority of


occupational scheme members, in the next few years we would expect


stakeholder pensions to replace AVCs as a means of extra saving for


retirement.


“FSAVCs, with their higher charges, will also disappear for those earning


below £30,000.”


But has the Government actually plumped for the right concurrency route?


Opinion is divided across the industry.


Tollerton says: “If the Government had allowed full concurrency, people


would have taken advantage and, while no concurrency would administratively


have been easier, it could have created mistakes to be undone later.”


McPhail says: “It is messy. People drift above and below the eligibility


threshold and there is still a fair degree of complexity. The Government


should have bitten the bullet and gone for full concurrency to avoid a


confusing halfway house.”


By and large, the industry reception to partial concurrency has been warm.


According to Legal & General, the scene has been set for a “significant


step in making stakeholder pensions the success they deserve to be”.


But some experts are disappointed with the Government. Scottish Life head


of communications Alasdair Buchanan says: “The Government has missed a


golden opportunity to simplify pension regulation. This new layer of


complexity highlights the need for good quality advice.”

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