I refer to the article concerning stakeholder in the May 3 issue of Money Marketing. Before addressing the article itself, which in my view entirely misses the point, I would like to make one general comment concerning IFAs and their relationship with the press, which has often been reported as less than ideal.
After reading this article and those in the personal financial pages of the weekend press,I do begin to despair a little, as I am sure must many other IFAs. The IFA community has been very vociferous concerning the failings of the whole concept of stakeholder from as far back as 1999, only to have been completely ignored by the press. They have now waited until after the launch before echoing this disquiet – stables,doors and horses?
The article ignores several other very useful and interesting applications that can be made for those who are better off but why spoil the party for them? The main point arises in the assertion that, having missed the target market, Stakeholder may become compulsory.
The first and the obvious question is, what will they call National Insurance, which many have regarded as compulsory pension saving anyway? If it is amalgamated into the tax regime, it will undoubtedly mean a raising in what is perceived to be the basic rate of tax – political suicide?
NI has been used over the years as the most insidious of the “stealth” taxes. Even if it were amalgamated into income tax, then over the past few years, many who have been receiving relief in the low 20 per cent rate will find when they come to take their pension they are paying tax on the proceeds at somewhere approaching 30 or more per cent.
More damming is the situation on the target audience. Having been asked by several firms to advise on stakeholder and, having been told prior to the meetings that they did not want to contribute for their staff, many of whom were well within the target group of earners at around £15,000 a year, I was very concerned to establish my regulatory position, so rang the FSA.
The position is, as I suspected, that, provided I merely advise the company and have no dealings with the employees, then my client is the company.
This ensures that in future years, if the situation does not change radically, I will not be open or liable for redress by having advised individuals wrongly.
It is worth entering a caveat that I well know that over 10, 20 or 30 years, it is not only possible but highly likely that matters will change drastically from the position today. It is still nevertheless the case that one must advise as per the prevailing conditions at the time, even if that means we may lay ourselves open for reviews and redress in the future.
Going back to the main point, if the employee should ask for an opinion or advice, then I will lay myself open for potential redress, when in the future they realise they would have been better off spending the money in the pub. That is even if I were willing to provide advice at all. The computations, the fact-find, the interview time – all for three pence three farthings.
So far, this is something that we all are probably familiar with. Additionally, we now have a situation where the basic state pension is in fact means-tested because the poorer and more deserving in our society will qualify for the minimum income guarantee, which by any other name is a means-tested pension.
The concept therefore of stakeholder seems to be a conspiracy by the Government and regulator either to misinform or not inform the target audience so they waste their money taking up a plan that has no real practical benefit for them.
IFAs are not wanted because they might point this out. Indeed, they have a regulatory duty to advise someone to join a stakeholder if the firm contributes – even if it is only peanuts. If IFAs are happy to join in the collusion, they can just deal with employers. Is this why IFAs are being kept away from individuals?
The 1 per cent charge is merely the method by which they are kept clear of spilling the beans to those in greatest need, who stand to suffer the greatest con. Those who were (and are) able to contribute to pensions have done so for years without New Labour's spin. That is why there is more than twice the assets in pension funds in the UK than in the whole of the rest of Europe put together – with no 1 per cent and no compulsion.
One could be more charitable and say that this is not by design of the current Government, merely a result of ineptitude. Perhaps, we should all ensure our wives become QCs and we become members of accelerated defined-benefit index-linked pension schemes.