It has been quite hilarious to witness the reaction to last week's suggestion that the charging cap on stakeholder pension may be altered from 1 per cent. It has been remarkable to see providers get so excited that you would think such an approach would rem-ove them from the hole in which many find themselves.
Do providers really feel that reducing the break-even point from, say, 14 years to 12 years will markedly improve their business model?
Does it really make such a difference if six of the 40-odd companies who started the stakeholder race survive instead of the four or five previously predicted?
If the cap does rise, all we will see is the stronger companies (not necessarily the best run or most efficient) driving a temporary hard bargain and retaining the 1 per cent level to force some other firms out of business.
My biggest concern is around the future of IFA life offices, what they bring to the table and how they are remunerated. Where do IFA product providers feel they sit in the value chain? Are they manufacturers, packagers or distributors? Surely they are simply packagers who add a wrapper and some distribution links to the entire process? What percentage of gross margin can that possibly command? Would I be wide of the mark if I suggested less than 5 per cent?
I would like to see some of our leading firms grabbing the initiative and making it clear that there is no requirement to change the cap instead of pleading with the Government to bail them out. Why are they not taking a more fundamental view of their business? Many are far too overstaffed, running tediously weak proc-esses on outdated technology.
It is so ironic that in the same month as the Raising Standards initiative, if I can call it that, is launched, that life offices feel compelled to reach out for the straw that is higher margin on stakeholder.
Talking of raising standards, how long before the next white flag is hoisted above an IFA provider? If the levels of expenditure incurred by the first five recipients of the quality mark are to be believed, there is no doubt that other firms will fall by the wayside should they try and achieve accreditation.
Perhaps most interesting of all is that none of the ABI members who are interested in the mark seem to have been in the position where they qualified without doing anything. In a pool of indictments over the last few years, that one must surely be the saddest?
This is practically an admission that the industry has been underdelivering to its customers since time began – not a strong negotiating position when it comes to lobbying on the future of stakeholder pensions. When are we going to see a fundamental overhaul of the sector? The realisation that most companies are grossly overstaffed seems to be dawning, so how long should we wait for the difficult decisions? Er, quite a long time if past performance is any guide.
I could, of course, be proved wrong but why should the Government be forced to backtrack without assurances that the product just cannot be sold within the current limit? Could it just possibly be that it cannot be sold within the current limits by the current providers? A considerably more realistic assessment of the market in my view.
So before they get down on their knees and plead with Gordon Brown for what amounts to a bailout package, I would like to see some of our major providers undertaking a proper reappraisal of their cost bases and business models.
David Ferguson is a director of product design and marketing consultancy the abacus and can be contacted by emailing firstname.lastname@example.org