Anyone who has sat through Steve Bee's marvellously witty but erudite
conversations about pensions cannot fail to have spotted that this is an
area where no idea quite works out as originally intended.
They may start with every intention of opening up the market in a new and
exciting way to reach the unpensioned and offer new opportunities for
easier financial planning but somehow the end-result never quite fitsthe
Is stakeholder a new breakthrough or more of the same? The idea is not
bad. Individuals, even on modest incomes, should be able to save with some
flexibility and security for their old age in an account which bears their
name and where they can have confidence about the charges deducted from
their fund. But somehow this objective has become obscured.
There has been perhaps over-concentration ona charging cap which leaves no
room for the advice which many undoubtedly will want to have if they areto
take out a stakeholder pension. Many willbe at the mercy of decision trees
which theymay find difficult – and certainly will find boring -to complete.
Then there are mixed messages. Telling individuals that they should save
for their old age is fine. Expectations of what individuals want to do in
old age are rising and, if those expectations are tobe met, then planning
throughout a working life becomes essential.
But the message becomes confused when it is set against the creation of
the minimum income guarantee. I am not questioning the social value of the
Mig but it clearly adds a complication. Is a stakeholder pensiona suitable
investment or a means of scrimping and saving to deprive oneself of a
benefit already guaranteedby the state? Is there any way out of this
I suggest that there are two potential “get out ofjail free” cards.
First, the Government must be hoping for some enthusiasm from employers
about the whole stakeholder concept.
If employers can be prevailed upon not just to offer stakeholder but to
offer it perhaps with an advice element paid for by the employer, than a
better environment for the success of stakeholder can be created.The same
action by a trade union would have the same result. But I suggest to both
that they would be well advised to keep well out of the advice or
quasi-advice game. If they appear to be pushing for the stakeholder concept
to individuals, then they had better get proper qualified support or they
will be doing themselves and their members/employees a disservice.
The second issue concerns what an individual cando with the stakeholder
pot when he or she comesto retirement.
At present, the idea is for an element of cash-free lump sum and an
annuity. The annuity could well be at a level which is of no use to the
investor but simply excludes state benefits.
This may be good enough for the socialsecurity budget but the prospect is
scarcely going to encourage investment in this new concept.
What is needed is far more flexibility in how the money is taken. If a
total stakeholder pot is below a prescribed level, then why should the
investor not take the entire pot, rather as though it had been saved in an
Isa and not bother with setting up a paltry annuity? The value of the
saving would not be undermined, and the confidence with which an individual
would feel able to go into a stakeholder contract – or be advised to go
into one – would be enhanced.
There does need to be some imagination from the authorities if their
latest good idea is not to be drowned in its own contradiction.