View more on these topics

Life offices slam Govt over with-profits rule

Life offices are accusing the Government of excluding with-profits funds

from stakeholder pensions by stealth.

The industry fears the Government risks alienating a large part of the

potential stakeholder market for whom with-profits would be an ideal first

step into equity-style investments.

Life offices estimate that up to 70 per cent of group personal pension

members participate in with-profits funds.

The claim follows last week&#39s publication of the final reg-ulations

governing stakehol-der, which stipulate that any with-profits fund used

must only be open to stakeholder investors.

This requirement virtually rules out any life office from offering such

funds unless they are prepared to cross-subsidise the fund heavily with a

cash injection from elsewhere.

This is because with-profits funds need to provide guarantees that initial

capital invested will not fall while cross-subsidisation is needed to

provide the characteristic smoothing of investment returns.

Clerical Medical pensions strategy manager Nigel Stammers says: “The cost

of the guarantees must come out of the 1 per cent annual management charge.

“This means that stakeholder customer will not have access to with-profits

and if they do it will be a more speculative product. It is a real pity

when so many of the stakeholder target market stand to benefit from

with-profits.”

Scottish Equitable pensions development manager Steve Cameron says: “As it

stands,I would be very surprised to see any provider offering with-profits

under stakeholder.

“To set up a new with-profits fund, you would need a huge capital

injection. But who pays for this injection? Under stakeholder, returns are

so low that it makes it very unattractive for a life office to offer

with-profits whether they are mutual or proprietary.”

Comment, p29

Recommended

Investment View

It did seem like a good idea at the time. It was February, after all. TheNasdaq was still soaring and technology shares were fast becoming thebiggest single industrial sector in the FTSE 350. So we decided to go forit. The Greig Middleton London Technology Conference was duly org-anisedfor the end of May.Flying in from Paris […]

Pru to go ahead with Egg flotation

Prudential is pressing ahead with its plans to float internet bankingoperation Egg next month despite recent falls in technology stocks.The Pru admits it had second thoughts about the flotation after continuingvolatility in the tech markets but finally decided to go ahead last week.However, the decision has cost Pru billions on paper.The price range is to […]

Yorkshire three-year stepped-rate bond offers up to 8% return

Yorkshire Building Society is offering a stepped-rate bond with aninterest rate that can reach 8 per cent.The rates are graduated over the three-year life of the product. In thefirst year, the annual rate is 6.25 per cent, 7 per cent in the second yearand a maximum of 8 per cent in the third year.Investors can […]

Trees not a crowd for consumers

Last week, the FSA set out its ideas for regulating the selling ofstakeholder pensions. We want to hear what the industry, consumer groupsand others think before we consult on formal rules and guidance later inthe summer.Stakeholder pensions can only be sold if they meet the minimum standardslaid down by the Government. We have taken the […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment