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Look at the wider pension picture

With all the hullabaloo surrounding the introduction of stakeholder pensions, it is easy to forget other pension products are alive and kicking.

Although stakeholder will undoubtedly affect the pension market, its appeal will not be universal. After all, the stakeholder market is narrow, targeting people earning between £9,000-£20,000 a year who are not already members of a pension scheme and who are looking for a straightforward pension plan. This excludes rather a lot of people.

The media have championed the benefits of stakeholder&#39s restricted charging structure to the full and, in doing so, have perhaps created an air of suspicion around other pension products which do not fit this low-cost requirement.

Of course, low-cost stakeholder products represent good value for money for customers in the target group. But, by necessity, the low charging structure also means the same flexibility and choice of features available with other products cannot be offered with stakeholder.

The idea of a straightforward pension, in theory, suggests there will be less need for advice. Correspondingly, less commission will be paid. However, this does not mean the pension market for IFAs is shrinking as a whole – indeed, the reverse is probably true.

Stakeholder pensions have already received huge amounts of publicity and, as such, have generated an increased awareness of pensions in general. Other opportunities do exist now and will continue to do so to the future.

This is particularly relevant in the market for company directors. Stakeholder can be used by IFAs as a foot in the door to talk about the pension needs of the whole company, including the directors and executives, rather than just the one section of the workforce likely to be affected by stakeholder. In this way, valuable opportunities to improve on existing provision or to create new provision can be identified.

Although not mainstream pension products, small self-administered schemes and self-invested personal pensions have carved a definite niche for themselves over the last decade. Both are aimed at the more sophisticated investor who requires more specialist advice and are particu-larly suitable for investors such as directors or executives looking for a versatile product that does more than just provide them with a pension when they retire.

In existence for about 25 years, the SSAS is particularly suitable for directors of private companies, especially if they have a degree of financ-ial sophistication and an act-ive interest in decision making. Offering the valuable advantages of loans, property purchase and self-investment, an SSAS can play an import-ant part in the future development and fortunes of a private company.

Obviously, rules and conditions apply but an SSAS is still one of the most versatile pension products around. In addition to be being a retirement planning vehicle, many companies will set up an SSAS with the express aim of purchasing a commercial property or obtaining a business loan.

Obviously, the extra flexibility on offer increases the scope for advice and the IFA&#39s role in this is a crucial one. It is usually acceptable to charge a fee for this advice rather than rely on commission from any insured part of the scheme.

The range of investment options available is one of the key reason why an SSAS appeals to the more sophisticated investor. Some providers of other pension vehicles offer the opportunity to diversify pension investments through external fund links which enhance investment flexibility enormously.

However, SSASs take investment choice a step further by opening up the range of investments available to the scheme trustees to include:

Shares quoted on the UK stockmarket.

Commercial property or land.

Insurance policies,

Unit or investment trusts

Shares in their own or associated companies.

Making decisions about where and when to invest can be complex and time-consuming. This gives advisers the opportunity to step in and offer guidance. Throughout the lifetime of an SSAS, advice will be essential. Even later on, guidance will be needed about how best to take the retirement benefits. Clearly, there is plenty of scope for fee- or commission-based involvement for advisers.

Sipps are newer than SSASs, with this year marking their 10th anniversary. As with SSASs, Sipps attract the more sophisticated, financially aware investor who is looking for greater flexibility than offered by a standard pension plan. Again, stakeholder is unlikely to pose any serious threat to this market and may even have the opposite affect.

As the traditional personal pension market is squeezed by the advent of stakeholder, greater focus will be placed on alternative, more flexible pension products such as Sipps.

As with SSASs, investment flexibility is one of the big attractions for investors in Sipps. Once again, this opens the door for IFAs to provide advice on the available range of investments.

In addition, Sipps can greatly enhance the flexibility available in retirement planning. Used in conjunction with an income-drawdown plan, the investor is able to change the investment strategy radically at any time, especially if the investment returns from the current provider are poor.

Where self-investment is used with income drawdown, the IFA&#39s role becomes even more important in the annual and triennial review process as the individual will require more sophisticated investment advice. The amounts of money involved in drawdown cases can be substantial and the investment strategy of the plan can significantly affect someone&#39s future. So the IFA&#39s role is crucial.

Whenever an annuity is eventually purchased, the IFA will again have the opportunity to step in and offer advice. As with an SSAS, an IFA can charge fees for the detailed advice and services they offer to these clients.

Undoubtedly, the advent of stakeholder pensions will have an effect on the pension market but this certainly is not all bad news as far as the adviser is concerned.

Pension awareness in general is likely to grow and this in turn will create opportunities to promote more sophisticated and flexible products. All of which clearly highlights the need for advice.


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