Surviving stakeholder. It strikes a chill into your very marrow, doesn't it? But beyond the hype, or dare I say it “spin', about stakeholder pensions, the products themselvesare actually not very frightening at all.
What is frightening was the prospect that millions of today's workers would retire with very low incomes because of the lack of suitable pension products available to them.
Now, with the introduction of stakeholder and the state second pension, pension provision should have a happy ending for millions more low and moderate-earners.
As with all new products, it is inevitable that the nuts and bolts can get somewhat lostin speculation. That is why I feel it is important to lay out exactly what stakeholder will mean in plain, practical terms for both the average person and the average IFA.
Let's start with the public first. Stakeholder pensions are being aimed primarily at the five million or so people earning between around £10,000 and £20,000 a year – including the self-employed – who do not currently have access to a good-value private or occupational pension. That said, there is no reason why higher-earners should not also benefit from them. The target group is not the market.
After all, we introduced stakeholder to fill a sizeable gap in the market. More and more people were looking for a safe, flexible, low-cost way to save for their retirement. Stakeholder will give them precisely that, in partnership with you the pension industry.
They are safe because they will be properly regulated by Opra and the FSA in accordance with our strict regulations. They are flexible bec- ause the minimum payment has been fixed at the relatively low sum of £20 a go and you can stop and start contributions whenever you want.
And they are low-cost because we have capped the charge rate at an all-inclusive 1 per cent. When I say all-inclusive, I mean that potential members of stakeholder schemes will be provided with sufficient information to make an informed choice about their pension scheme at no additional charge.
Where an individual feels they need more advice before they can make a choice, then scheme providers will be able to charge for providing it. But we already know some schemes will be offering advice as well within the 1 per cent.
In May, the FSA published its discussion paper on stakeholder catchily entitled: “The FSA's approach to the regulation of the conduct of stakeholder pensions business.” In it, it included the latest draft of the decision trees and how exactly the trees will help consumers understand stakeholder and pinpoint the issues they need to consider before deciding whether or not to join a scheme.
By anyone's standards, stakeholder looks like an attractive proposition. But together with our partners in the pension industry, we have gone the extra mile to make stakeholder even more appealing to as wide a swathe of the population as possible.
Take concurrency. We have put regulations in place that will ensure stakeholder will be available to employees already in an occupational pension scheme as long as their earnings do not exceed £30,000 a year. This will mean that a further eight million people or, to look at it another way, nearly 90 per cent of employees contributing to occupational schemes, will be able to enjoy the benefits of having a stakeholder pension.
We also listened to the feedback we received throughout the consultation period about balancing the costs to small businesses with the retirement needs of their employers.
As a result, for now, any firm with fewer than five employees is exempted from offering access to stakeholder schemes. But for firms with five or more, it will be mandatory unless theyare already offering their employees a suitable alternative pension scheme.
We will shortly be sending all employers with five employees or more a guide on what they will need to do about stakeholder pensions under the employer access requirement. This information will also be made freely available to anyone else who has an interest in the subject.
We have made saving for retirement easier on the pocket by allowing members to pay up to £3,600 in to the scheme each year, tax-free.
But that does not mean we are sitting on our laurels. There is still a lot to do to make sure it is not just a matter of “surviving stakeholder” but eagerly anticipating them.
That is why, for the first time, we are planning to provide everyone of working age with a clear annual statement of their current, projected state and private pensions.
These forecasts will give them a reasonably accurate picture of what their retirement income is likely to be if they continue to save nothing and leave planning for a pension to the last minute. Hopefully, it will jar a few more people into putting more money aside today for a comfortable retirement tomorrow.
Next January, a few months before stakeholder is launched in April 2001, we are also planning to launch a new pension education campaign, similarly aimed at raising awareness about the need for a decent pension.
In that respect, the Government and IFAs are on the same side. It is in everyone's best interests to see more people making more provision for their retirement. We do not want the public and IFAs to survive stakeholder. Ultimately, we want everyone involved to thrive from their introduction and help us to make a decent pension for everyone a reality.