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Govt lifts life sentence on retirement savers

The structure of personal pensions has effectively allowed the life insurance industry to monopolise the retail pension sector.

All the Government&#39s blustering about pension misselling has done nothing to change the situation. But with the introduction of the Individual Pension Account, it would appear all this is about to change.

The Government&#39s consultative paper detailing the introduction of IPAs was a tri-umph for common sense and for retirement savers. In bringing forward plans to create IPAs, the Government has effectively endorsed unit trusts and other collective investment schemes as appropriate vehicles for retirement savings.

The combination of stakeholder benchmark standards with IPAs will radically change the way in which individuals approach pension saving and investment in the future.

While I argued that the Government&#39s decision to include with-profits funds within stakeholder amounted to reckless conservatism, IPAs will offer exposure to collective investments that will minimise the real risk for retirement savers – the risk that they may not live in a modicum of comfort in their old age.

IPAs will enable people to invest in a range of collective investment schemes and, in essence, allow pensions savers all the same investment opportunities they enjoy with Isas.

Modelled on the US 401(k) retirement scheme, the intention is to give savers a sense of ownership and control that is not available through other pension investments.

The message delivered by the IPA is simple – your pension plan is no more than a wrapper around an investment – and it is a contractual arrangement just like an Isa. There is no need for retirement savers to lock themselves into a 20-30-year policy with a life insurance company.

IPAs will enjoy the transparency and flexibility of an Isa. When consumers come to appreciate the clarity offered by IPAs and the pension statement looks like an Isa statement, the advantages of insurance policies will seem bleak – or at least opaque – in comparison.

Another thorn in the side of the life companies will be the decision to make unit trusts and Oeics exempt from the new stamp duty reserve tax regime when held within an IPA. The concession ends tax bias against unit trusts as vehicles for retirement saving and removes the folly of giving more favourable tax treatment to insurance products.

No doubt the insurance industry will pour scorn over IPAs but no monopolist is likely to welcome the breaking up of its monopoly. Could it be the life industry worries that individuals will follow the route of occupational pension trustees and abandon insurers ahead of specialist investment managers?

Does the success of US mutual funds strike fear into the hearts of life company marketing men?

In other jurisdictions (the US, Canada and Australia) where consumers were off- ered a real choice between insurance policies and collective investment schemes for their retirement, the latter has emerged as the clear favourite.

I would hope that in the future, the Government&#39s new IPA will emerge as the preferred investment vehicle for retirement savers in the UK.


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