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IPAs set to grow slow

The Government needs to take action now to boost industry support for individual pension accounts if they are to have any impact, according to the industry

Public demand for IPAs will also need to be encouraged by life offices and unit trust managers with major promotion.

IFA Torquil Clark pensions development manager Tom McPhail says he cannot see spontaneous public demand for IPAs. “Consumers tend to be led by what they are told and as long as providers do not see promoting this scheme as desirable, then consumers will not demand them.

“Nobody will stand there and demand an IPA so the Government needs the support of the industry to get this under way.”

Life companies see IPAs as a non-event. They do not believe they offer anything new to the marketplace and see no additional gain from providing IPAs.

But they are very clear about visualising the additional costs from new systems development and administration procedures associated with the new products.

A lot of people are still to be convinced that they are a way forward, says Scottish Widows pension strategy manager Ian Naismith. They do not offer anything that is not already available through existing unit-linked funds. He believes IPAs are just add-ing another layer of complexity to the pension market.

Naismith says: “There is a danger of this scheme never really getting off the ground. Perhaps if one or two investment houses went for them in a big way they might build up momentum and could take off.

“However, they will be a player at the higher end of the market and not something the general public will jump at and say this is what we want.

“We will certainly be developing stakeholder, so competition for our resources will mean it is difficult for us togive IPAs priority. It is unli-kely that we will get anything on the shelf by April.”

The question of why people would be attracted by IPAs rather than more traditional pension schemes is also an issue. Life offices feel IPAs would be more likely to appeal to the more sophisticated financial investor and the core stakeholder market is unlikely to invest in such a compli-cated scheme.

Scottish Equitable pensions development manager Steven Cameron says: “If someone is taking a pension, they will say they want a pension. They might additionally have a preference for a particular sector in which they want to invest within their pension.

“But I do not believe that people will think to invest through a unit trust as they are a very sophisticated and detailed area for your average investor to consider.”

The life offices are adamant they are not worried by new competitors entering the marketplace but they are concerned these new entrants might not have the internal framework to cope with pension provision.

Cameron says: “We have no objection to these companies being able to compete with us. But selling pensions has a lot more to it than offering an investment fund.

“Providers need to distribute and administer all other aspects of a pension scheme and unit trust companies that see IPAs as a quick fix to get into the pension market will quickly see there is more to it. Therefore, I do not see them as a threat. It is an open market and the market will decide what it buys.”

Unit trust companies unsur- prisingly disagree. They say they are taking time to consider the most appropriate strategy to approach IPAs and do not feel any compulsion to meet the Government&#39s launch date of April 2001.

Jupiter Unit Trust Managers joint managing director Steve Glynn says the company is looking carefully at entering the IPA market but this depends largely on the results of the Treasury&#39s consultation.

He says: “We believe there are great opportunities for good fund management groups with the new proposition that the marketplace is not used to. There is scope and time for fund managers to enter a slightly more straightforward product that the public will want to understand.

“This rationale does depend on whether the charging structure around it is suitable. If IPAs have to stick to a stakeholder charging structure then the likelihood is that we would not enter the market.

“We believe the majority of clients need IFA advice and this should be provided with the best fund management. We do not believe we could provide both these elements in a 1 per cent charging structure as you get what you pay for.”

McPhail agrees that product providers need to take IFA distribution into account when planning IPA structure. They will need IFAs to promote the product but if there is no financial incentive then it is unlikely to happen.

He says: “Providers need to design solutions that allow IFAs to sell IPAs to consumers profitably.

“If we get this solution it will be very attractive as IPAs allow IFAs to take a bigger role in the planning of the investment.

“In effect, IFAs will become the investment manager for the client&#39s pension fund.”

The feeling is the IPA market will be promoted to consumers who already show an interest in investment.

Perpetual pensions development director Fiach Maguire reckons consumers who invest in Isas might want to look at investment-led pensions.

There will be fierce competition but it will be between insurance companies&#39 insurance products competing with unit trust IPAs.

Maguire says: “They should worry because I believe consumers will prefer the transparency of a unit trust product. There is no doubt will they prove popular, but it will take a while to build interest.

“I think the direct providers will be the first into the market and will court interest. Then other providers will enter the market when their investors start asking why they are not providing IPAs. It is similar to the Pep market – as investor interest grew, the market grew.”

The industry is adopting a wait and see policy on IPAs and the market reaction to the early entrants will be watched with interest.

The overriding feeling is that the first marketing opportunity will not come into play for at least 12 months.


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