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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


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


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