The arrival of stakeholder over two years ago created a new low-cost benchmark for the industry but some providers have found it difficult to adapt to its charging structure.
Where providers have collected all their charges up front, it has been relatively easy to say that plans will remain stakeholder-compliant in the future.
For others which have given extra allocations at the beginning of the contract, the situation is not so easy.
Friends Provident, Scottish Equitable, Skandia and Axa cannot say whether their pension products are all on stakeholder terms.
Axa spokesman Steve Muir says: “Our view is that if people are in a position to keep contributing into a plan, how can we make it so they are no worse off staying with us? We have not changed our charging structures but, for incremental business, instead of 100 per cent allocation, we are giving 105.5 per cent allocation, which broadly equates to a 1 per cent reduction in yield although some contracts may be marginally higher.”
Scottish Equitable is one of the providers that did not switch clients over en masse to stakeholder terms. Spokeswoman Margaret Robertson says: “It is very difficult to compare apples and oranges. Because we gave higher allocations of units at the beginning, we could not move contracts across in a blanket fashion.”
Norwich Union gave a guarantee on its funds that it would not charge more than 1 per cent a year although switching penalties remain.
Standard Life also made a blanket offer of stakeholder terms, as did Legal & General, which switched all its contracts on to stakeholder terms with a guarantee on top that individuals would not be worse off under the new contracts.
Scottish Widows repriced its individual and group pensions with 100 per cent allocation and a maximum 1 per cent annual management charge from June 2001. Clerical Medical has also repriced.
Life offices are unable simply to wipe away the commission paid at the time the product was sold, so continue to charge penalties for switching to other providers.
L&G pension marketing director Andy Agar says: “This is where the IFA has a huge role to play. It may be that despite the penalty of getting out of a fund, it is still worth it if you are going to get a lower charge through the remainder of the life of the policy.”
Scottish Life has not moved clients on to stakeholder terms and says it is the responsibility of the adviser to evaluate whether it is in the interest of clients to stay in the contract or add further payments. Factors affecting this decision include the specific nature of the contract, the client's intentions on how long they will contribute to the product and the IFA's approach to commission.
Scottish Life group head of communications Alasdair Buchanan says: “With our existing book, we provided IFAs with information to let them know whether it was worth moving clients on to stakeholder terms. In the vast majority of cases, it was not, because the existing structure meant charges had been levied up front.”
Richard Jacobs Pension & Trustee Services director Richard Jacobs says Prudential has been ruthless in its pricing, particularly cutting back on commission on pension contracts, which may be an advantage because it makes it a stronger life office. He says: “Pru is being utterly ruthless in the way it does business but if that means it will be the company that is around in 10 years time, then you have to ask why Standard Life is being so generous.”
Some would argue that providers are repricing where they can, where it is easy and where it makes good business sense to do so.
Buchanan says: “It is not as simple as saying some companies have been nice and repriced while others have been nasty and have not. Some companies tried to position their repricing as being customer-friendly but the reality is it was in their financial interest to do so. Then you get the companies that have repriced some products but not others. This demonstrates that they have only done it where there is an economic argument to do so.”
Skandia will not waive charges for clients wanting to change to new contracts. Pensions brand manager Billy Mackay says: “Our stance has always been that it is down to the IFA to decide whether it is worth transferring to a new product.”
Mackay believes the policy of switching clients to stakeholder could come back to haunt providers or the advisers who placed the business. He says the way some providers' documents describe the annual charge as 1 per cent while others express the charge as the Government's stakeholder cap could cause problems if the cap is raised in the future, as life offices hope.
He says: “If the cap goes up, the life offices will have two choices. They may hold their existing book on 1 per cent, which will leave the IFA with no problem but leave the provider still writing business on a 12 to 15-year profit horizon. But if they turn round and say the stakeholder cap has changed so the charge is going up, IFAs who have described a reduction in yield of 1 per cent in their reasons why letter will have to revisit the client.”
Competition on prices means IFAs are in a position where they have to keep an eye on clients' contracts and switch them over if the maths say they should, even if they could be accused of churning.
Anyone concerned on that score should remember the FSA itself issued a paper last year entitled, To Switch or Not to Switch. So, if it is OK for the FSA