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IPA is a new wrapper but the same old song

The Government has fitted the last cog into its pension machine with the

unveiling of its Individual Pensions Account, describing it as a “brand

new” pension savings vehicle.

But within hours of the launch, fund managers slammed the proposals,

claiming IPAs had little new to offer and was just another case of

Government spin.

The Treasury and the DSS made a joint announcement last week on the tax

wrapper, declaring IPAs will give access to better and more flexible


Unit trust companies admit the Government&#39s concession, giving IPA savers

stamp duty reserve tax relief, is a small victory in their fight for a

level playing field with life offices in the retail pension market.

But it is not yet clear what moves these companies will make and it

appears some may even be prepared to look the gift horse in the mouth and

refuse to offer IPAs.

Aberdeen Asset Management development director Piers Currie says: “It is

exciting in principle but confusing in detail. Everyone loves the idea of

being able to offer collective investment products but I am a little

confused as to whether it is really introducing a new product. We have got

about a month as an industry to work out ways to make it more clarified.”

Some investment companies are planning to move into the IPA market,

hop-ing to emulate the successof Isas. The likes of Fidelity are understood

to be included in these.

But few, if any, players intend to offer IPAs within stakeholder&#39s 1 per

cent charging cap.

This throws a significant spanner into the Government works as it had

always intended the IPA, in its previous guise of pooled pension

investment, to interface with stakeholder.

On the new level playing field, who can afford to play by stakeholder

rules and offer top returns within 1 per cent?

As reported in Money Marketing last week, Perpetual pensions development

director and Autif pensions advisory group chairman Fiach Maguire is among

those who believe companies will struggle to do this.

Some experts say any stakeholder-branded IPA is likely to be a basic

tracker fund, with actively managed products reserved for those outside the

1 per cent cap.

The Government has also presented the investment companies with an

administrationpuzzle to solve. If, for example, a unit trust had half of

its investors as IPA savers and half asregular investors, the company has

to administer half with the tax relief concession and half without.

The investment companies can either unpick the tax relief or take the “two

of everything approach” which would involve launching an IPA version of

every fund.

Currie says: “I think they will have to be separate funds because their

tax treatmentis different.”

Invesco sales director Stuart Alexander says: “From an administrative

point of view there will be problems. The Government has not thought

through the technological aspects of the central administration of IPAs. I

am notquite sure how it is going to work with stakeholder. It is confusing

for the marketplace. It seems to be another attempt by the Government to

reinvent the wheel.”

Once the potential admin glitches have been ironed out, the fundamental

question remains what benefits IPAs will deliver to consumers.

Even the most positive about the new product are clear the IPA project is

little more than a repackaging and rebranding of what was already on offer.

M&G director of sales and marketing opportunities Jeffrey Mushens says:

“The Treasury has said there is nothing new in IPAs but the putting

together of what was already available. Unit trust personal pensions have

been around since 1988 but no one bought them so this new product is good

news for IFAs in the way that Isas have been.”

It is understood that Treasury financial services head Paula Diggle

admitted in a meeting with senior investment industry representatives on

the day IPAs were announced that there was little new in IPAs except for

the repackaging and rebranding.

The “30 per cent pensions savings boost” line which was fed to and

digested by the national press has certainly not taken in the industry.

Gartmore head of retail pensions Nick Hodges says: “It is the biggest

piece of political spin-doctoring I have seenin 30 years in the pension

industry. IFAs large and small want to know what the Government is trying

to achieve and what they are adding.

“On what basis are they making their case studies to generate the

&#39£30,000 saved&#39 illustrations? I doubt very much that they are

comparing apples with apples.”

Torquil Clark pensions development manager Tom McPhail says: “They are

using a very large sledgehammer to crack a very small nut. It is one more

layer of complexity.”

In an ideal world, the Government would like to see IFAs unpeel this extra

layer of complexity all within the 1 per cent stakeholder margin.

Consumers might be misled by the headlines into believing they could get

more bang for their buck with IPAs but IFAs will be left with the job of

sorting out the mess and taking on an extra burden.


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