LG: With the trend towards single-charging on all pensions and the stakeholder benchmark charge of 1 per cent, many organisations will be looking for ways to maximise the distribution which can be achieved by their manufacturing base.
Different organisations will find different solutions to this. The L&G/Barclays alliance is one solution – bancassurers selling more than one brand to different distribution channels is another.
TR: Years ago, before the emergence of bancassurers, banks had agencies with Life offices. Some also had IFA arms. The L&G/Barclays alliance is simply a throwback to those days – Barclays will be a tied agent of L&G.
The key point is that there is increasingly a separation of manufacture and distribution. Barclays will distribute products manufactured by L&G. Others may follow in similar or in slightly different ways but the separation of manufacture and distribution will be common to all.
GS: The answer depends on the outcome of the polarisation review.
Do such tie-ups present a serious threat to IFAs?
LG: No. If IFAs can continue to offer a competitive product – which they should be able to – there will still be a need and demand for independent advice.
TR: No. IFAs will not have a problem in promoting their independence over the non-independent Barclays/L&G tie-up. Before the tie-up the IFA would have been in competition with a direct salesperson from Barclays selling Barclays' products. In future, the IFA will be in competition with a salesperson from Barclays selling L&G products.
GS: The alliance does not present a serious threat to IFAs and the past track record of IFAs in dealing with serious threats is impressive. IFAs provide real choice, unbiased advice and a personalised service which will continue to be in demand well into the future.
How successful will the DSS advertising campaign on pension options including stakeholder be?
TR: I do not think the DSS would have invested in this campaign if they had not thought that it would increase awareness.
However, awareness is not everything. What is needed is action by employers and employees, and usually these people need to be persuaded before taking action. The IFA is in an ideal position to do this. So, the advertising campaign, in raising awareness generally, will help IFAs.
GS: This campaign will play a part by raising awareness. However, the success of stakeholder will depend on the promotion by providers and the activity of advisers.It is disappointing that the advert makes no reference to the important role of advice in pension planning.
Will Individual Pension Accounts be ready for a full launch in April?
LG: Yes, in the sense that the regulations will all be in place by then but, compared with stakeholder, progress on this has moved at glacial speed especially when you consider that the idea was first mooted in January 1999. As a result, it will all be too late for IPAs to be widely available in April.
TR: You will have to ask the unit trust companies. I think that most life offices will take the view that individual pension accounts do not offer any more than individual pension plans. Life offices are certainly gearing up for a full launch in April of new products that take into account of all the tax changes that come into force, and also stakeholder pensions. Currently, I think that IPAs are probably an irrelevance for most life offices.
IPAs are not pension plans but individual investment vehicles which can move from employer to employer, supposedly in ways that minimise charges linked to transfers and ongoing contributions – features that can be accommodated largely within the new range of personal pension plans now being designed by life offices.
GS: Given the timescale and the lack of clarity surrounding IPAs, it is highly unlikely that we will see a full launch taking place in April.
Is it time to scrap the compulsory purchase of annuities at the age of 75?
LG: It depends what is put in its place. It is certainly time to look at creative alternatives to the current very restrictive regime and there are a number of ideas which are currently being examined.
More sophisticated alternatives are possible but these must be considered in the context of an older person's decreasing ability to handle complexity.
TR: The problem with scrapping the age 75 annuity rule is coming up with alternative. Merely putting the age back to, say, 80 is not necessarily all that helpful because people will still be forced to have to buy an annuity at a given date when either their retirement fund may have reduced in value and/or annuity rates may have just dropped, making the annuity purchase particularly unattractive.
However, any alternative to the purchase of an annuity – at any age, not just 75 – has got to be attractive to the mass of people with retirement funds – small, medium and large – not the small proportion who are prepared to enter into drawdown plans and take the risk that their funds could underperform and that their income or annuity could reduce.
Most people do not want to take risks with their retirement funds and for these people annuities are a sensible investment. The answer to this problem lies in new products which revolve around shared pooling of risk but without the constraint of having to invest in gilts.
GS: With increased life expectancy, it is time to review and increase the age limit of 75. It will be important to consider all the issues, not least of which is the mortality drag beyond age 75. Simply increasing the age to 80 only shifts the problems five years down the road.
Is it bad news for pension savers that many providers will not be able to offer with-profits within stakeholder under the current DSS rules?
LG: It will certainly be a bad day for consumer choice. There are many investment options which might be seen as suitable alternatives to with-profits but it should be up to the consumer to choose.
Why this should be so is unlikely to be understood by those who might want to invest in with-profits.
TR: There is no doubt that the Government is not keen on with-profits funds, largely as a result of their lack of transparency and complexity from a consumer viewpoint.
Nevertheless, the with-profits smoothing process does provide an alternative to the ups and downs of unit-linked investments.
With-profits is definitely a feature that IFAs would like to promote to some clients. If with-profits is not available under stakeholder because of the stringency of the surrounding regulations, it will still be available under personal pension plans.
The option to invest in with-profits funds as well as unit-linked funds will be an obvious differentiating factor between stakeholder and personal pensions, thereby giving a boost to the latter.
GS: Yes, the choice of a with-profits fund should not be denied to stakeholder customers. Standard Life's research shows there is demand among customers and IFAs.
A with-profits fund with a financially strong company gives customers good potential for growth at an acceptable level of risk.