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Firm foundations

The Government&#39s stakeholder proposals left insurers in little doubt that

business operational models for retirement savings would need to be

drastically transformed.

The Partnership in Pensions document promised that stakeholder could be

decon-structed into governance, administration and fund management roles,

potentially resulting in providers retaining administration but losing the

fund management role.

Employers would face a statutory responsibility to facilitate the new

pension scheme, resulting in potentially more complex administration for

the many employers offering existing arrangements.

In addition, the levying of a single fund-based charge would require

efficient policy maintenance.

The challenge for insurers was how to judge correctly what would be a

successful future model. Thus, AIG Life&#39s idea of the Zeus pension

administration system took form.

Most insurers operate a manually intensive and, therefore, expensive

pension admin process. IFAs send and receive paper-based communications

when establishing, amending or querying any aspect of the product, with

telephone calls routinely backed up by paper confirmation. With this

process comes delay, misunderstanding, mistakes and costs.

For stakeholder, what is needed is a direct, simple, ideally single

interface administration process for which a new way of working is


The fact that stakeholder delivery will be employer-centric, like group

personal pensions, is in little doubt. Small and medium-size employers were

always going to be hardest hit and these are the same employers with which

advisers have the closest links.

Many such employers offer pension provision for their staff via GPPs, many

of which may not comply with the current proposed stakeholder standards.

Employers cannot assume that staff will wish or even be able to have a

stakeholder plan from their existing GPP provider. It is quite likely that

there will be multiple pension providers represented in the workforce.

This problem is made more acute when one considers that average staff

turnover can run as high as 20 per cent. Therefore, an ideal solution would

include existing pension arrangements. However, even if such a system were

available, employers would need someone to operate it and liaise with their

payroll operator.

Many IFAs recognise clients&#39 resistance to initial commission, as well as

the inherent business dangers, but its disappearance also causes potential


So what can IFAs do to succeed in the new stakeholder environment? Our

research has concluded that IFAs must become employer-centric. Servicing

groups of clients through employer connections is the only profitable

strategy. But if stakeholder is to be attractive, the IFA should do more

than deliver just the statutory requirement.

Our research suggests that small enterprise employers have difficulty in

attracting and retaining top-quality personnel. One of the principal

reasons is the scarcity of cost-effective employee benefits for smaller

employers. So, by acting as a business consultant to the employer,

developing and maintaining employee benefit structures, value is delivered

to all parties.

This is a service that is required especially with Opra fines looming for

late contribution delivery. Presentations to staff on the benefits provided

by the employer keep the benefits fresh in the employee&#39s mind.

To aid both IFAs and employers, the Zeus system is an internet-based

platform allowing access to scheme data. It holds a live online database so

that instructions are not a request to amend but actually amend client


It allows the IFA to establish and populate the group scheme online,

taking information from electronic files held by the employer.

IFAs can create what-if scenarios and target funding with their clients,

obtain valuations, perform projections and make fund switches.

Third-party provider schemes or products have an administrative umbrella

placed over them and the information from payroll updates the contribution

records held. The information is then batched and compiled into a file and

dispatched to the relevant provider as an instruction from the IFA.

Where data standards for the provider are available, the information is

constructed in the prescribed format. At all stages the data is sent in a

secure format.

Of course, there is also an opportunity for other benefits to be included

such as Isas, dental, medical and general insurances along with lifestyle

benefits, which might include car purchase, club memberships and discount


With our pilot group, we found that the amount of time spent on pension

scheme management can vary. However, one-and-a-half hours per scheme per

month is typical. Although IFAs&#39 charges differ, it is obvious the revenue

streams can quickly become significant.

In addition, providers generally seem able to offer part of the 1 per cent

charge as fund-based commission to IFAs. Therefore, IFAs can look forward

to a reasonable level and increasing amount of investment-linked revenue.

By using guaranteed funds, this revenue stream can be protected.

We think we have taken a fresh look at the implications of stakeholder and

how it impacts on IFAs, employers and providers. We also believe that Zeus

gives IFAs the tools they need to deliver a valued and essential service in

the pension and employee benefits market of the future.

This is also great news for company pension administrators who can now,

via their IFA, cost-effectively provide the multiplicity of benefits that

their increasingly financially aware employees will demand.


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