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Let them eat stake

With only weeks to go before stakeholder pensions begin to be marketed by some companies, the financial services industry and the Government can both claim some initial credit over the launch.

From the industry&#39s perspective – and with a healthy number of providers looking set to offer them – stakeholder pensions represent another clear example that long-term savings initiatives can be delivered on a low-cost, transparent and highly portable basis.

More work is still needed but, aided by the planned ABI Savings And Long Term Risk initiative and performance league tables, there is a real opportunity for the industry to enhance its profile significantly and deliver the level of financial services required by so many but currently taken up by so few.

Following the Government&#39s undoubted success with Isas, which even the most hardened critic must now find it difficult to argue against, Ton Blair&#39s administration must also derive some pleasure from seeing so many providers signalling their intent to offer stakeholder pensions.

So can we all pat ourselves on the back for a job well done? Not yet, I am afraid. If only life – or pensions, for that matter – were so simple. The real task, as we all know, still lies ahead of us.

Despite the fact that stakeholder pensions are more flexible, transparent and likely to be more cost-effective to the end-customer, there are still notable hurdles that will need to be overcome if stakeholder is to achieve widespread penetration.

It is generally believed that there are around five million employees earning above £9,000 a year for whom a stakeholder pension would be appropriate in the absence of any existing pension arrangements. The problem is that many of these employees will be working for small employers, which may be exempt from offering a scheme because of their size.

Even those employers with more than five staff, with no obligation to make any contributions themselves and with no obligation on the part of staff to join, may decide to comply only with the basic minimum requirement, that is, to make a stakeholderscheme available.

Any Government advertising campaign must be targeted at the people who need it most.

The two most important categories will be inexperienced consumers investing possibly for the first time and/or small employers which want to help their staff but who have no prior experience of implementing an occupation-linked pension scheme.

The aligning of personal pension limits and removal of the earnings&#39 link for contributions up to £3,600, while welcome in terms of increased market potential, has nevertheless potentially blurred the picture in terms of the original target market.

Some providers, in view of the low fixed charges, will naturally target high-net-worth customers who will pay their full annual allowance plus that for a non-working spouse or partner. I would suggest these consumers will need little Government assistance to realise fully the many merits that stakeholder will offer them.

The potential good news from research conducted recently by CIS is that over 60 per cent of small employers said they would be prepared to make some contribution to their employees&#39 pots. This statistic will, of course, be meaningless if these employees do not see the value in contributing towards their long-term security.

The ultimate measure for stakeholder success will be the level of penetration in the original target audience.

A thorough but carefully targeted Government awareness programme, which raises and addresses the key areas of concern among the least-informed groups, has a pivotal role to play within the communication process.

If this does not happen, the next pension scandal could evolve around those people who could have contributed to a stakeholder scheme but somehow did not.


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