Is stakeholder a loss leader? Its introduction is certainly not a negative for IFAs. The per-ceived threats have been turned into opportunities and now is the time for IFAs to capitalise on them.
The Inland Revenue has set up a a dedicated stakeholder website at www.inlandrevenue.gov.uk/stakepension. While this in itself will not help to increase sales of stakeholder plans, it should improve awareness and get peo-ple thinking about the future.
For an adviser, to get in front of individuals who have a genuine need for advice and wish to explore options for the future is marketing utopia.
Until October 2001, a variety of Government, industry and media bodies will be working actively to promote education on retirement provision. Two of the best sales aids will be the advertising campaign the Government will undertake shortly and the DSS's work with employers.
The DSS has published a guide for employers on its website at www.dss.gov.uk/publications. Over 400,000 paper copies of the guide are also being sent out. If you have not yet received a copy, get one. It has some excellent sales ideas for both stakeholder and add-on financial advice.
The guide explains to the employer what stakeholder pensions are, whether the employer is affected by the new laws and what they must do to prepare for them.
It is also useful in that it establishes a sell-by date – or, at least, a have-in-place-by date – in the mind of employers. Page three of the guide says: “You could designate a stakeholder scheme any time from October 2000 so that it is available for your employees to pay into from April 6, 2001. If you are not exempt, you must give your employees access to a stakeholder pension scheme no later than October 8, 2001.”
Later on, it says: “If you have an existing occupational scheme or an arrangement with a personal pension provider (often known as a group personal pension scheme), you should check with the provider of that scheme, or your independent financial adviser, to find out if the scheme meets the conditions for being exempt.”
Moving on to page six of the booklet, it explains the steps that the employer must follow to offer their employees access to a stakeholder.
Among other things, they need to:
Choose a registered stakeholder pension scheme.
Discuss the choice of scheme with those employees who qualify for access.
Designate the stakeholder pension scheme.
Arrange to deduct contributions from employees' pay.
Give employees information about the payroll deduction arrangements.
Make the payroll deductions if an employee wishes.
If an employer is not exempt, they must give their employees access to a stakeholder scheme by October 8, 2001. If an exempt employer's circumstances change and they are no longer exempt after October 8, 2001, they will have three months in which to choose a scheme.
If they do not do this, Opra could take action against the employer which might mean it gets fined. What a great reason for seeing an adviser.
Further on, on page nine, the guide covers giving help and guidance to employees. It says an employer can give its employees help and extra information about the benefits of saving for their retirement. But it warns: “You must not advise your employees. Every individual must make up their own mind about the best way to save for their retirement. A stakeholder pension is just one of the pension options available but there may be another options that suits the individual better.”
In this sales aid for IFAs designed and prompted by the DSS, we now need to move on to page 15. Here, there is a summary of the penalties which Opra may levy on employers if they do not:
l Set up a record of the payments they make.
l Keep the record up to date.
l Send the record to the scheme provider.
l Tell the provider about any changes.
l Make the correct payments on time.
I believe this type of Government-sponsored sales aid will get IFAs in front of employers in a favourable environment.
But how many IFAs have looked beyond the stakeholder pension hype and seen the opportunities that stakeholder will open up for the wider employee benefits market?
Most IFAs have already recognised that they will need to make contact with existing clients, if only to check whether the pension arrangements they have already put in place will grant exemption from also having to offer access to a stakeholder scheme.
But do not miss the fact that existing GPP clients will also need to find solutions for life cover and waiver for all new members who join from next April. This is because, in any one tax year, the maximum contribution for life cover within a plan has been set at 10 per cent of the contribution paid towards the stakeholder pension.
With stakeholder providers unable to impose any premium frequency on pension contributions and hav-ing to accept amounts of £20 or above, the 10 per cent limit does create a few practical difficulties in monitoring premiums.
Restricted cover limits for older lives is more worrying. Most British families would face a sharp reduction in their standard of living if they were hit by serious illness or death, according to a a recent study commissioned by Scottish Provident in conjunction with Mori Financial Services.
The survey found that 56 per cent of people have no insurance cover at all that will help secure their financial position in the worst event-uality. According to the report, only two in five consumers have enough life cover to pay a lump sum if they die, while just over one in seven have critical-illness cover to provide a lump sum if they are diagnosed with a serious illness.
A further quarter of the 2,063 people questioned in July believe their employer will bail them out if they are unable to work for more than six months. In reality, most employers would support them for only six months.
About 40 per cent believe the state will provide for them and their family financially if they are unable to work for six months or more. But state benefit is currently only £59.90 a week if you are ill for up to 28 weeks, increasing to £67.50 if you are out of work for a year.
The reality of today's working environment is that employees are looking more and more at the total benefits package they are offered by their employer.
Employee benefits is undoubtedly a business area with considerable growth potential and stakeholder could be the loss leader that allows IFAs to move into this area now in order to reap rewards in years to come.