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How to build stakeholder business

Providing a stakeholder pension in the 1 per cent world can be achieved if some creative thinking is applied.

Unfortunately, many of the UK&#39s more well known commercial providers are not having the success they would have liked with sales. Within the constraints of the maximum annual charge of 1 per cent, it is unlikely that a monthly contribution of £20 would be enough to cover the costs associated with a big life office.

The issue that these offices face is that their business model dictates that they target high-net-worth individuals. The problem is that the HNW market probably already has adequate pension arrangements and stakeholder is unlikely to be appropriate.

Next on their financial pecking order is probably the non-working spouse or children of this group, hence a lower than expected sales volume.

The vast majority of the target market – those on low to moderate incomes – are unlikely to have any other form of long-term savings. Therefore, providers may not see any scope for the cross-selling of other, higher-profit-earning products.

If providers want to be serious players in the stakeholder market, they need to have a different approach when it comes to tackling this special market.

The key to success is to work with employers. At B&CE Benefit Schemes – provider of financial services products to the construction industry – we have spearheaded this approach.

EasyBuild, our stakeholder scheme, has been developed to make it simple for employers to make contributions through payroll deduction. You do not need to be a mathematician to work out that, from a business perspective it is cheaper and more effective to collect 100 contributions from one employer, than 100 contributions from individual employees.

Furthermore, through an industrywide agreement negotiated between employers and trade unions, employers contribute up to £5 per week to EasyBuild on behalf of their employees.

Increases in the employer&#39s contribution are usually dependent upon the contribution from the employee. In short, the more the employee saves, the more their employer contributes. While the current contribution levels are not sufficient to provide a meaningful income in retirement, it is important to get the low to moderate earners into the savings habit.

Automatic payroll deduction makes it administratively easier for the employer to monitor contribution levels.

This approach has resulted in an increase in the number of individuals making their own stakeholder contributions to EasyBuild compared with B&CE&#39s previous occupational scheme – a real example of how successful the partnership between employers and their workforce can be.

B&CE believes that the future of stakeholder pensions rests on providers working with the Government to make regulation simpler and remove red tape.

For instance, when applying for a stakeholder pension, each applicant has to wade through at least 30 pages of information which can act as a great disincentive to invest.

Put this into the context of the stakeholder pension target market – those on low to middle income – who may not be the most well versed in personal finance, and it is clear that the approach has not been thought through. What the industry needs to do is not pluck an off-the-shelf solution and target it at perhaps a less financially savvy market. We need to be creative.

We do not believe that stakeholders should be scrapped just because providers cannot make a profit from them. The financial services industry needs to build on them. It is clear that more and more people are being left to make their own pension provision but are not doing so. Financial services providers, working with employers, can help these people.

It is simply a question of whether they want to or not. Providers need to rise to the challenge of the 1 per cent world.


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