The pension industry is split over with-profits under stakeholder, with Clerical Medical steering clear while Norwich Union is making with-profits its stakeholder default.
The news follows fears raised by the Faculty and Institute of Actuaries last week over ring-fenced with-profits funds under stakeholder, where the costs of investment smoothing and guarantees will need to be met within the confines of fledgling funds. This prevents cross-subsidising the fund from existing with-profits funds.
The actuaries are worried that unless life offices can bolster the stakeholder fund by dipping into orphan assets or shareholders' returns, with-profits can only be offered with low guarantees and limited smoothing. It claims this undermines two of the key attractions of with-profits for policyholders.
Other life offices planning to offer with-profits include Standard Life, which is planning to offer the option without guarantees, removing the need to set aside expensive reserves. Scottish Equitable says it wants to offer a “full-blooded” with-profits with guarantees as well as the other traditional features associated with such funds.
ScotEq claims some life offices are applying the with-profits label to products which are not genuinely with-profits.
Norwich Union head of pension strategy Jerry Barnfield says: “The stakeholder market is a broad one and the with-profits concept with smoothing and guarantees is suitable for a mass market. We recognise that there is a danger of diluting the concept but are equally aware of the meeting the needs of consumers.”
Clerical Medical pension strategy manager Nigel Stammers says: “We have decided not to offer with-profits under stakeholder.
“If you do, you have to either offer a fund with no reserves and very little guarantees or you have to use orphan assets which is unfair to the rest of your with-profits policyholders. Consumers will be very confused by the two different types.”