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It all adds up to nothing

Sorry, I know what I am about to comment on happened a couple of weeks ago but I really had to come back to this topic, if only because of the utterly mendacious way in which the Government has chosen to treat the issue.

The subject in question is that of stakeholder savings products and the launch, a fortnight ago, of the Government’s “new” campaign aimed at encouraging people to take one out.

Working on the assumption that we are all comp- letely stupid, the Department for Work and Pensions felt the need to assert that its exciting slogan, Stakeholder Saving – It All Adds Up, aims to “build on the success” of its stakeholder initiative.

According to my copy of the Oxford English Dictionary, “success” means “the accomplishment of an aim or purpose”. How close is this definition to the Government’s claim that stakeholder products are a “success”?

Not very close at all, actually. The latest figures from the ABI show that so-called annual premium equivalent sales, which measure the total of all monthly contributions made in a year plus 10 per cent of all single payments, were just 92m in the second quarter of this year. That is a staggeringly low figure – the equivalent of a few pounds per individual invested in a stakeholder pension.

That is not the full story, either. Earlier research from the ABI shows that while up to one-and-a-half million stakeholder pensions have been set up, most of them through workplace schemes, the majority are shells into which no payments are made.

Conversely, the average size of monthly contributions is more than 150 – much higher than the amount that the savers the Government is hoping to attract into pension saving could realistically afford. What is also not clear is the extent to which stakeholder pensions are simply syphoning away money that would otherwise have been going into some other savings product.

Bearing in mind the poor response rate to stakeholder products so far, you would imagine that any campaign aimed at encouraging greater take-up of them would be massive. Just think of the huge publicity blasts from all the main political parties when they were scrapping with each other during the general election.

Yet, when it comes to promoting its wonderful savings scheme, the DWP is spending a mere 10m on the campaign, which includes TV slots, newspaper adverts and leaflets through doors. This is an insignificant amount, certainly when compared with the vast budgets spent each year by car and washing powder manufacturers when marketing their products to the general public.

It is hard to believe that more than a few thousand people will respond to this feeble attempt to persuade us to save more. In turn, this publicity campaign may become known as the most expensive in the history of marketing in terms of advertising response rates. If 100,000 new plans were taken out, the cost would be 100 each and I cannot believe that even a fraction of that number will be motivated to start one.

The only thing that saves the Government on its stakeholder products is its “success” over child trust funds. Here, stakeholder CTFs are said to account for between 50 and 70 per cent of all policies sold since their launch in April.

Given that the 250 in CTF vouchers being handed out to each child born after September 2002 is seen as “free” money by parents investing it, that is hardly surprising. But even with CTFs, more than half of parents with children who are eligible for them have failed to set one up, according to research last week. Just 41 per cent of parents who have received their vouchers from the Government have opened a CTF for their kids.

The plain fact is that, notwithstanding ludicrous claims of success, the Treasury’s stakeholder initiative increasingly looks to be dead in the water. Hardly surprising, really. Despite all its huffing and puffing, the Government has always been half-hearted about stakeholder products.

Proof of that can be seen in the flawed charging structure for these products. The current regime allows companies to charge up to 1.5 per cent of a fund’s value for the first 10 years of its life, reverting to 1 per cent.

This new charge cap was actually raised from an initial 1 per cent after protests from the industry that IFAs were unwilling to recommend stakeholder products unless commission was raised. The difficulty here is that 1.5 per cent is hardly better.

It would be far better to allow up to 3 per cent or even 4 per cent as an initial payment to advisers for recommending on all contributions and then keep the annual cap at 1 per cent or lower.

So what we have is a half-hearted Government marketing campaign on behalf of a product that advisers refuse to sell, to consumers who refuse to buy it. It could only happen under New Labour.

So there I was last week, trolling through Headlinemoney, the journalists’ personal finance news website, when I read that Aifa has just appointed a new head of marketing, Rebecca Pratley.

Rebecca was quoted as saying: “Aifa provides an important service to the IFA community. It’s exciting to join such an influential, highly regarded team and build on their success.”

Think about it.


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