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Not many happy returns for stakeholder

The ABI has published its first detailed stakeholder sales figures providing an indication of who is buying the products as it approaches its first anniversary.

Despite public protestations to the contrary, the numbers must be worrying for those who have attached themselves to the product&#39s success.

Out of the original target of 350,000 employers, the ABI figures report that 320,000 have set up a stakeholder scheme for staff. But only 750,000 individuals have taken out a plan, which roughly equates to a ratio of two people contributing for every scheme in place.

Selling 750,000 policies after only one year isn&#39t bad, one might say, but many of these have not been new sales but transfers of existing group or personal pension schemes into stakeholder because of the flexibility of the plans.

One example is those who have transferred out of Equit-able Life pension plans. A total of £4bn has left its with-profits fund and it is believed that many of these policyholders may have bought a stakeholder with their funds.

Another is the Builders & Civil Engineers Benefits Scheme, which accounts for one in four stakeholder purchases, according to the ABI figures. But a lot of this business was existing pensions which had been transferred into the EasyBuild stakeholder.

The ABI&#39s figures say 97 per cent of stakeholder sales have been to people of working age and many say this is evidence that it is hitting its target market.

But looking closer, 55 per cent of stakeholder plans have been bought through the workplace.

For the remaining 45 per cent arranged individually,43 per cent have been bought by those in the £10,000 to £29,999 range and, of that figure, a quarter have been bought by this group for someone else with no earnings.

Just to confuse matters further, statistics relating to earnings are incomplete as the ABI says it only knows the income for 14 per cent of sales completed.

If it is original target audience buying stakeholder,then there are a lot of individuals buying them outside the workplace and thus it appears it is missing its goal.

IFAs suggest that perhaps those buying the plans are the rich for their spouses or children of working age.

Wentworth Rose managing director Philip Rose says: “I think it is a sad tale. It has failed to reach its target audience. It has been sold to employers who are obliged to set them up and the rich for their grandchildren or wives trying to take advantage of the tax relief.”

The average monthly contribution to a plan has been £81. At this rate, a 35-year-old would have a weekly retirement income of £134. This is not significantly more than the minimum income guarantee, which is £92.15 a week, making such contributions potentially a voluntary tax.

Hargreaves Lansdown pensions development manager Danny Cox says: “The target audience cannot afford to pay in the amount they need to. Paying into a pension is not top of their list of priorities.”

IFAs say it seems clear to most in the industry that in its first year, stakeholder has failed to achieve many of its stated objectives. Yet the Government insists it is on target and welcomes the ABI&#39s figures as the long awaited proof that stakeholder is being sold to those it was intended for.

Scottish Life head of communications Alasdair Buch-anan says: “The Government would have to recognise that stakeholder has not been an overwhelming success.I think they do see that what they set out to do was flawed from the beginning.

“It has not been the case that if you give them access to stakeholder then pension savings will dramatically increase. It is the case that the people in the target market do not have the disposable income to save.”

Most say there is nothing wrong with stakeholder as a product but the target audience has no motivation to save. Either they cannot afford to or they have lost confidence in the industry following incidents such as the Equitable Life debacle and pension misselling.

Informed Choice managing director Nick Bamford says: “There has been a massive loss of faith in conventional pension planning as a way to save for retirement. Consumers are very reluctant at the moment to save through a pension.”

The Government has some serious questions to tackle. It is means-testing today&#39s pensioners through the pension credit and putting off savers from making provision for retirement.

The great worry is that as long as they continue to fly the stakeholder flag, the issue of extending the provision of saving, or tackling “the savings gap” as it has become known, will not be accomplished.

Many in the industry have offered solutions but so far these suggestions appear to be falling on deaf ears.


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