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's 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
“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.”