Now that it has finally arrived, let us pause and consider what stakeholder is actually about. “Pensions for the people”, “the death of advice” and “provider ruin” are just some of the claims. Many believe it could lead to some significant changes that will hit the industry.
Pensions for the people is a laudable aim. We all know governments have no option but to privatise pensions. Indeed, from a customer perspective stakeholder pensions have much to offer. But if this is so good and there is such a demand, why has nobody done it before?
Maybe, just maybe, there is no money to be made. This is not about rip-off Britain but there are no other markets where suppliers provide products in the full knowledge that they may not see any returns for at least 10 years. Such a proposition is ludicrous. In a market where many providers have not written new business at a profit for years, a 1 per cent margin may simply be too tight – the stakeholder concept is a golden goose for its potential customers, but there may be severe financial difficulty in actually laying the egg.
If pensions for the people is not to become a damp squib, the “people” have to want the products and be able to pay for them. This is the major stumbling block. Put simply, because this is where the squib is positively drenched, no spare money means no buying power. To prove the point, those at the opposite end of the intended target market – the better off – will use stakeholder as another tax-efficient means of investing. Why? Simply, this group of people take advice and have buying power. There must be a lesson in there somewhere.
What makes this worse is that the salesforces best placed to distribute individual stakeholder are all being disbanded, because they are unviable. Stakeholder has broken the camel's back for Prudential, Britannic and Sun Life Financial of Canada and there could be more to come. For the same reasons, most IFAs will not operate in the individual stakeholder market. Millions of people could become disenfranchised from advice, apart from that available from the banks. Is this what the Government really intended? Gap filling is simply no substitute for the vigorous competition that the 1 per cent world has removed.
But wait – decision trees, that's the answer! Time for another simple message and another lesson. It does not matter how simple the product is – if people think t is complex they need to talk to somebody qualified for advice.
So, what is going to happen? The consolidation of providers will speed up, the remaining “home service” direct salesforces will struggle and IFAs will be forced even further upmarket. Take-up will be predictably disappointing and compulsion will come in. On the positive side, IFAs will earn fees at the corporate level, the need to streamline will have rapidly speeded up e-commerce in the industry and, despite the difficulties, consumers will have a very friendly product available to them. But at what cost? In the longer term, there will be less competition, a sector dominated by a few large players, less access to good quality face-to-face advice and the potential for widespread mis-buying.
From a consumer perspective it would be good to make stakeholder work. But its very heart – 1 per cent – could be its undoing. The Government may well want to see changes in this industry with some justification – and change it will get. But will it be the change it actually wants and which is really in the public interest?
David Shelton is head of strategic marketing at Clerical Medical