Life offices have launched into a bloody stakeholder pension price war which has seen annual management charges plummeting below the Government's 1 per cent cap.
Legal & General and Friends Provident have kicked off with aggressively priced “stakeholder friendly” group schemes with annual management charges as low as 0.65 per cent.
While Scottish Mutual's Universal group plan, with an AMC of 1 per cent, includes the facility for 0.2 per cent IFA commission.
Their moves come despite howls of protest from the life industry over the charge cap which companies claimed was too low for them to make a profit.
Friends Provident head of corporate pensions business development Paul Stanbridge says it is capable of offering schemes with AMCs as low as 0.55 per cent.
But he admits this is dependent upon whether commission is paid, the size of the premiums and the number of scheme members.
Stanbridge says: “It is an aggressive stance, but we have looked at every aspect of our business in order to cut costs, from sales and marketing through to administration and regulatory requirements.
“Our fund managers are now working on a 10 to 15 points basis.”
But the aggressive price cutting has come under attack from other life offices who claim the companies involved run the risk of opening the door to even more aggressively priced competitors from abroad.
Norwich Union pensions marketing manager Iain Oliver says: “Companies relying upon cost alone is leaving them vulnerable to predators.”
Oliver believes companies need to give customers something extra if they want and to develop loyalty.
Pension providers have united in calling for the Government to clarify the issue of stakeholder advice, believing the whole issue is too complicated to be explained through its preferred decision trees.
Oliver says: “We believe they are too complicated and are a recipe for disaster.”
Scottish Equitable pensions development manager Steven Cameron says: “The use of decision trees for advice is far to simplistic. How do you explain contracting out?.”