Happy birthday, stakeholder pensions? A birthday card you won't be receiving from LloydsTSB wealth management service Create
Another big idea that did not work despite all that capability/cash and customers. The missing C must have been credibility. Even the wealthiest customers hesitate to engage with this service from the UK's most successful bank.
Think how much more freedom LTSB had compared with the tightly constrained world of stakeholder pensions – how much more worrying and ironic therefore their failure.
Besides the mass affluent, the other market all the major banks have their eyes on is the SME sector. Here, there is every likelihood of an equally frustrating experience for it would be hard to describe a group more sceptical of banks than small businesses.
The SME market is the territory the Government badly needs to work efficiently. It also has laudable aims for stakeholder pensions – to unleash the savings potential of those on modest incomes. The vast majority of these people work in small to medium-sized businesses and there is a great irony in the fact that it is just this sector which faces the prospect of fines and sanctions as a result of their failure to comply with the new regulations.
These rules show every sign of having been designed not for them but for an increasingly mythological corporate environment with the time, skill and altruism to comply with bureaucracy.
There is a real danger that the clumsy imposition of these rules will damage the very part of the economy vital to our success. This is particularly critical at a time when the stately flagship of defined benefits is sinking and expanding the savings gap still further.
Up to 50,000 firms face the prospect of a fine. Not, I suspect, for any fraudulent or truculent lack of willingness. The time and attention required to comprehend the regulations, select partners and brief an often unsophisticated workforce is an onerous burden for a small business.
The risk becomes all the more evident when you pause to consider who these people are. Not a sort of Lilliputian corporate land, each with their own miniature HR and finance functions, but hairdressers in Huddersfield, dairy farmers in Devon and greeting card des-igners in Grantham. Not a coherent segment of the economy and not one in which a uniform style of communication and distribution will work. Non-uniformity costs money.
Distribution must be tailored to the needs of this disparate group to reach them in their own workplaces. Stakeholder assumes a level of charging which ignores this. The irony of this is that the IFA is particularly well placed to understand this – all of them are SMEs and many of their customers, too.
The Government is fearful of failure in the pension arena and stakeholder was a core component of their economic and social policies. Other aspects of their financial services strategy threaten to exacerbate the problem further. The demise of definedbenefit schemes through regulatory and fiscal change, the ambiguity which threatens the annuity market and the discontinuity created by CP121 all conspire to create an even more bewildered consumer.
It is probably true that half the UK population have yet to hear of stakeholder so reaching out to them costeffectively can only happen at the workplace.
The IFA community must help the Government move away from impending disaster by articulating a constructive strategy to deliver the required level of take-up for stakeholder. This would involve designing a pragmatic and realistic framework for distribution and by quantifying the level and type of funding which will be needed to deliver it.
This financial model must be sustainable. By this I mean it must include a level of adequate profit. The adoption of such an approach requires a shift of mindset on both sides of the great debate but it holds out the real prospect of engaging the IFA community on the side of the Government to deliver a stakeholder success. Alternatively, I guess we could always ask the banks to help.
John Cowan is a management consultant