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Ease the charge cap or stakeholder will not stay the course

Stakeholder may prove to be equally cursed and blessed. The first tentative ABI numbers show some 224,506 sales from April&#39s launch, with 88,394 company designations.

Sales include an unspecified number of converted pensions while the designations represent the creation of an infrastructure for compulsion or for future sales, not actual sales. In the same quarter in 2000, around 250,000 personal and occupational pensions were “sold”.

Stakeholder is working up to a point but fundamental problems remain. The price-capped pension has been designed for a compulsory world without compulsion.

It is still expected to be sold but is risky for providers&#39 shareholders and existing policyholders because they carry an unprecedented start-up cost risk. The wealthy will benefit from a stakeholder season up to April but low to middle-income earners may miss out.

Does this mean compulsion is coming? Compulsion is an intensely political decision. Frank Field may call for 5 per cent on National Insurance for pensions but this would be seen as a tax hike. A recession would make it difficult to impose compulsion on employers or the self-employed.

But if the pension is to work rather than look like it is working because of transfers and annual tax sheltering, it needs a shot in the arm from compulsion or easing of the charge cap. IFAs should hope it is the latter. Compulsion makes the numbers add up but could see IFAs cut from the equation.

As for pension coverage, stakeholder will half-work because of employer access. But some of the previously unpensioned will have been better off paying debts or buying an Isa. As we say, equally cursed and blessed.


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