I'm not sure if I dare but I feel compelled to criticise, in the nicest and most positive way I can, Ruth Kelly's commentary piece headlined Why the cap fits in Money Marketing of July 15.
The reason I feel able to is that the item seemed to be aimed at a generic audience rather than one sector in particular. You can be sure that none of the life offices will challenge a single syllable – at least not in writing, it will be the usual grumbling in private.
The first issue to cause incredulity was the comment that the new cap of 1.5 per cent initially and 1 per cent a year after 10 years is a fair balance. Fair for whom? A small, regular and advised sale is a profits disaster. A massive drawdown case is too expensive. It is anything but balanced.
We are all familiar with loss-leaders in supermarkets (loaves of bread for 10p, cans of beans costing less than if they were filled with air) and how they distort competition. We are also aware that once we have been enticed into a store with these special offers, it then fleeces us with value-added products that are anything but.
A price cap of 1 or 1.5 per cent is just like the loaf of bread costing 10p. The fleecing that is going on in our world is the quality of service – from the life offices and to our own clients.
The next questionable claim is that nearly two million stakeholder pensions have been sold since launch. I wonder if this is true? How many personal pensions might have been sold instead? We have arranged countless stakeholder pensions with perfectly good offices but their products before stakeholder were just as good so I would not nominate them to count towards the two million total. But the Treasury bean-counters will no doubt be claiming the glory anyway.
A further doubtful assertion is that the Treasury is encouraged by the number of offices which intend to market these products. I have no doubt the Treasury is encouraged but are life offices telling the truth when they say they are keen to do so? I would suggest that they have no option but to say they do as the alternative seems suicidal. As we know, the likes of Skandia and Winterthur have so far ignored the price cap and, if anything, seem to be gaining momentum and support for that bold stance.
Whether the Treasury likes it or not, you cannot defy logic. Every fibre of my being tells me that setting up an investment product costs quite a lot of money to start with and not very much thereafter. If a client wants Rolls-Royce service, they can always ask for it and pay a suitable fee. But it still costs more than 1 or 1.5 per cent to start with, whichever way you look at it. No amount of hopeful talk can change the basic laws of business life.
You have to wonder why the unit trust world seems so quiet on the subject.
Whenever I test this thinking on the public, they tell me that it only seems sensible and fair to pay more upfront and maybe a little every year if servicing is an issue.
A stakeholder pension is such a bargain that if the public understood how good they were, they would be queuing round the block to join up. But you are then back to another bit of ignored logic – that no matter how good something is, if people have no spare money, they will not buy it anyway. If you do not believe me, make them free and see how many more people sign up.
So when Ruth Kelly bullishly says the new stakeholder products will be good news for providers and consumers, does she really believe that providers think the same? If they tell her they do, they do not say the same to me. Why is it the feedback I get in private differs so much from the reported feedback through the media?
I wish for once that we could all agree, both in public and private, and go on to change things for the good of the consumer. After all, this is what we all want. If it is not, then it is not worth changing.
Tom Kean is compliance officer at The Analysts