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IPA is brewing up to a bitter start

Pension providers are placing IPA plans on the back-burner while focusing on getting stakeholder products up and running by April 2001.

Although the Govern-ment has scheduled the launch of IPAs to coincide with stakeholder, the industry is spending the next seven months concentrating its efforts on existing plans for stakeholder rather than developing a new product.

Scottish Equitable director of pension development Stewart Ritchie says: “The question is whether there will be enough gain to make it worth the pain of setting up the infrastructure for an IPA. In the long term the answer is unproven and in the short term it looks very doubtful.

“I cannot see us busting a gut to offer IPAs at the first opportunity. We have system priorities relating to stakeholder pensions and clearly we must make sure that scheme is up and running.”

There is also concern that rather than encouraging consumers to make adequate pension provision, the simultaneous launch of two pension products will confuse them.

Ritchie says: “We are scratching our heads a bit to see what value will be added from IPAs. In the short term, it is not just a case of not adding value but might subtract value by adding confusion with the launch being at the same time as stakeholder.”

The Government issued its first consultation document on the individual pension account back in January 1999. The aim was to provide a flexible investment vehicle that could be placed in other pension schemes, particularly stakeholder.

The Government&#39s aim for IPAs is to encourage saving and to give consumers more confidence in equity investment by providing simple charging structures, spreading inv- estment risk, security and transparency. The concept has been informed by the successful US 401(k) saving scheme.

IPA managers will be able to invest in unit trusts, Oeics, investment trusts and Government securities. From the launch date, these investments will escape the ravishes of stamp duty reserve tax, meaning that IPAs will be covered by the same tax rules that apply to traditional pension investments.

It will particularly benefit people on moderate incomes, such as part-time workers, and will be easily transferable so people changing jobs will be able to transfer their IPA investments without damaging their pension savings.

But this idea of portability is an issue that has been continually questioned by providers. Clerical Medical pen- sions strategy manager Nigel Stammers says: “The claims being made about portability have as yet been unsubstantiated. I can only see this happening if IPA providers group together and say they will accept each others&#39 products. I think this is unlikely to happen. What we are left with is an idea of portability thatis notional but not real.”

Other providers have also voiced concern about the Treasury&#39s claims for portability. When a consumer needs to change the wrapper on their policy the new provider is supposed to absorb the assets from the previous fund. However, providers may not want to do this.

As Gartmore head of retail pensions Nick Hodges says: “If they are not transportable for anything in the marketplace, then there will be no determination in the industry for us to want to do that. Why would we as a fund manager start an IPA just so people can invest in other providers&#39 funds?”

This attitude could potentially lead to consumers having to cash in their old investment and start again with the new provider. As Hodges says, the product does then not provide anything that is not currently achievable in the marketplace.

The Government&#39s intention to offer a simple pension option that consumers can work out for themselves has been applauded by the industry. There is concern they have complicated their own plan by launching it at the same time as stakeholder but IFA network DBS public relations manager Sue Lewis says this could be to the benefit of IFAs.

She says: “We welcome the idea of consumer choice. We do worry that IPAs add ano-ther layer of confusion to the pension market but this would increase the role of an IFA.”

Legal & General pensions strategy director Adrian Boulding says IFAs will have a role to play in preventing IPAs from being a direct competitor to stakeholder but the whole process would be simpler if there were minimum standards applied all the way across pens-ion products.

He says: “We were surprised that IPAs do not include Catmarks. There is nothing in the consultation that says IPAs should meet minimum standards in the way stakeholder does and we were disappointed at that.

“Without Catmarks, IPAs will have high charges, taking customers away from stakeholder without the customer even realis-ing they have taken the higher-cost option.”

Several providers have queried the possibility of accounts being able to survive within the 1 per cent cap of stakeholders, especially in view of the cost of transferring assets from one provider to ano-ther but Boulding believesthis is possible.

He says: “We have proved that 1 per cent cap is feasible with stakeholder so we believe that same 1 per cent should be applied to IPA. The Treasury has developed IPAs to level the playing field on tax but I think they should level the playing field on charges as well.”

The Treasury has onlyjust received the responses from its consultation and believes on the whole that thefeedback has been positive. A Treasury spokesman says the Government&#39s aim is to provide the best charging field for consumers.

The Treasury believes IPAs will be seen as a major employee benefit and employers will want access to the product. Many providers may not be developing a product for the April launch but, if the Treasury is right, will they be able to resist the demand?

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