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On the plus side?

Stakeholder pensions were the clean-cut product of the future in 1997 when Labour came to power.

But, three-and-a-half years on, what should have been the simple and shiny answer to all the UK&#39s pension problems has been hijacked at the last minute by IFAs who refuse to convert to fees and product providers which just cannot say no.

In April next year, we will have the stakeholder pen-sion but we will also have stakeholder plus, a hybrid personal pension and stakeholder which offers greater flexibility and the ability to pay commission.

With IFAs accounting for more than half of all pension sales, according to figures from the ABI and Misys, which have endorsed their members taking up to 0.5 per cent over the 1 per cent Government cap to pay for advice, you have to wonder what will really change.

The FSA says it is happy for advisers to sell so-called stakeholder-plus contracts which charge for advice on the basis that most people will not need it.

An FSA spokesman says: “By and large, stakeholder is a straightforward enough product for people in straightforward enough circumstances not to need specialist advice.”

But Scottish Equitable marketing director Ken Hogg says it is in nobody&#39s int-erest to limit advice. He says: “It should be a combination of good advice and a good-value product.”

Misys says all it is doing is ensuring that everyone who needs a pension has access to advice.

IFA Services head of marketing Andy Bedford says: “We want to get members to recommend in most cases a no-charge contract but can you offer advice within the 1 per cent? The answer is no. We are saying that, provided it is documented and you make it clear, we don&#39t have a problem with it.”

But some in the IFA community do not agree with Misys&#39 stance.

Maddison Monetary Management managing director Mark Howard says it will definitely not be going down the Misys route. He says: “When there is meant to be more clarity within the contract, it does not make sense to add something on to it and it defeats the whole object of stakeholder.”

DBS says Misys&#39s move is another example of its power games with its members.

DBS public relations manager Sue Lewis says: “This is another example of Misys putting a positive spin on their restrictive practices. They are dictating how much people can charge for stakeholder advice and that is not something we will be doing with our members. Stakeholder advice has to be looked at more holistically.”

But Bedford says: “I think everyone is looking for a lead and we are the first pivotal player to come out and tell our members what to do and still adhere to the guidelines.”

Howard says it is the fact that Misys controls more than 20 per cent of the IFA market that makes its stance so dangerous. “They are in danger of cheesing off the Government to the extent that it comes down on the whole industry. The Government wants clarity and that is why the fee route is the way the industry has to go,” he says.

However, Hogg says it is not just commission which could sway advisers tow-ards a stakeholder lookalike. “Stakeholder-plus offers greater flexibility, proper with-profits and external fund links,” he says.

Bedford says this increased flexibility means that commission still stacks up as a means of payment and the industry should not knee-jerk into fees.

Some would argue that a network which makes its money from a percentage of an IFA&#39s commission earn-ings would say that but Bedford says: “We also take a slice off members&#39 fees so we do not care.”

The arguments for commission over fees include the fact that VAT is chargeable on fees but not on commission and a client with not much money would have to find a sizeable chunk up front to pay for advice.

So, most insurers are designing their stakeholder-plus products to be as flex-ible as possible to allow adv-isers to choose their pay-ment method.

Axa Sun Life marketing manager Steve Muir says: “The object of the exercise is to give the adviser the wherewithal to decide how to construct the product for their clients.”

So, if it is better for the client to have his fee taken from the product, stakeholder-plus will accommodate it and, if the client wants to make sure he has access to future advice, the IFA can also cost this into the pension.

Scottish Equitable is offering similar options. Hogg says: “It is horses for courses and it will depend on the IFA proposition to the client. Some IFAs will be able to provide an offering within 1 per cent and some will not. The key is about flexibility and the products need to be able to adapt. We offer a multitude of ways for people to take their charges.”

Sedgwick Independent Financial Consultants has yet to be convinced by either side of the stakeholder-plus argument, saying it will finalise its strategy over the next few weeks.

Howard says IFAs have been talking for a long time about smartening up their image and being perceived in a more professional light, saying this will not happen while the industry is based on commission.

He says: “The whole basis of the industry has to change to fees. If you are going to charge, you should do it in a clear way and not hide behind a contract.”


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