Over the last year, just about everyone in the financial services industry has had their say on stakeholder, and whilst we have wrangled over the fine print it seems we have forgotten to invite one party to the discussion table.
Yes, it looks as if British business does not know and does not care about stakeholder. Fair enough, they are too busy fighting off floods, fuel costs and rail problems.
This summer, we surveyed leading pension and life offices about stakeholder and their concerns. The report does not make for easy reading – there are too many lose ends to cover by April 2001.
One of the most disturbing facts we uncovered is the cost to British business. This could be one of the greatest selling opportunities for the IFA sector or it could go belly up. Getting business on board is going to be a tough nut to crack.
New pension, new costs
There will be significant costs for all British businesses with more than five employees. They represent a significant proportion of the working population, some 16.4 million people.
We found that the Govern ment's own figures seriously underestimate the start-up and ongoing costs for industry. The pension industry says start-up costs range from£246m to £1,640m. The Gov ern ment maximum ann ual estimate cost to business is £410m. Our survey, however, suggests four times this amount at £1,640m.
No business wants to add to overheads. Needless to say, the CBI is concerned about the report findings and the additional burden on business.
You will obey my command
One area of concern is the administration of stakeholder. Integrating new IT systems is never easy. Interfacing pension office computers with payroll systems will be a nightmare.
Yet business has no cho ice. The rules are clear about who must do what, by when or face regulatory action. For example, payroll deductions must be made within 19 days to pension fund providers.
Opra is expected to run a tight ship. Last year there were 7,372 reported late pension scheme payments. We expect this to balloon as businesses unfamiliar with the structure struggle to cope.
There is significant scope for widespread fines for persistent late payments.
The question for advisers and their clients is simple – who is going to pay for someone with the expertise to sort out the problems?
We will have to wait and see but it is going to be a tough job convincing clients that the system is fair.
What price advice?
The previous figures do not include the cost of advice. We looked at two levels – first the cost of advice to potential purchasers, the employers and employees. We then looked at advice to us, those who will do the donkey work.
We know that giving advice costs money and that regulated advice does not come cheap.
Providers are pinning their hopes on bulk schemes – one size fits all employees. But we also know that the pension system is still complex and that people will still need advice.
Whatever you do with stakeholder, you are going to need to be able to see where and how you are going to charge for your advice.
I will if you will
There is also another implicit cost that has had little attention so far. The cost of advising the advisers is one that no one has even tried to calculate.
If you add the training and competence time and cost to internal systems, your business must undertake, you will find you are in a similar position to businesses on the rec eiving end of stakeholder.
Luckily, much of the training is being given by insurers and pension companies. But it still has to come from someone's budget.
You may feel as if you have had your fill of new regulations, decision trees and the like. I think you ought to get the regulatory antacid tablets out, because there is going to be more – much, much more.
Never in my 14 years in the industry have I seen pension and life companies agree on any topic. The survey results surprised me. They were 100 per cent unanimous in dem anding advice from the FSA and Government on contracting out. Anyone care to put a price on that, then? No chance.
But the real sting in the tail is compulsion. A significant proportion of our survey respondents identified compulsion as a possible means to improve the success of stakeholder.
If it fails the first time round, then pension funding will become compulsory. And if it is compulsory, why would anyone need an IFA?
Add in the cost of restructuring and training us lot, stakeholder does not seem the low-cost pension option we were hoping for.