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Pension tension

We are very definitely in the final run-up to stakeholder. The pension sheepdogs are doing their bit on TV, part of the Government&#39s £6.5m campaign to raise public awareness, and commentators in various publications are enthusing about the future for the pensions in the brave new world. But there are some who will admit that stakeholder itself is not necessarily responsible for the bright outlook.

One or two national papers have heralded the fact that policyholders will now be getting a fair deal from the insurance industry. My memory isn&#39t long enough to remember if these were the same nationals that heralded the advent of widespread pension transfers in 1988, freeing employees from the dreadfully unfair restrictions placed on them by those nasty employers&#39 schemes.

It is presumably only a matter of time before one picks up on the fact that long-term reductions in yield on old-style pension policies can be lower than those under stakeholder. This is just one good reason to include a full explanation of the charging structure of plans in reasons why letters.

Most providers will, of course, have to offer electronic delivery in order to accommodate adequate servicing at a reasonable cost. There has been a great deal of systems work undertaken with stakeholder in mind and this will eventually benefit other areas of life and pensions business as well.

One notable point about the current range of stakeholder-friendly plans is that a large part of the business is being written in the traditional manner, on paper.

Given that some estimates show insurers save 90 per cent of the cost of administration by full process electronic servicing, one has to wonder how long the traditional method can be allowed to continue.

And how will insurers cope with clients who insist on continuing in this manner?

As an IFA, it is worth bearing this in mind, particularly with some smaller employers, in case the interface between paper and electronic systems should fall to IFAs.

Scottish Life reported a good year for new pensions business in 2000. Whether this can be repeated in a market with less room for manoeuvre, even with its new parent, only time will tell.

Some advisers report very good experience with the company, but its presence in the group market is not especially large – although last year&#39s business will have helped.

Although technically not required, a number of the providers of stakeholder-friendly plans mirror the stakeholder requirement for a default investment option from their in house funds. This is not at all a bad idea but advisers may wish to add value by selection of the appropriate fund for the individual client.

As we enter the last two months before stakeholder, a little attention should be paid to waiver of premium. The facility will disappear for new business from April 6 and we have so far not been advised of any pension provider that will offer the contract as a stand-alone benefit without tax relief, although I understand that Swiss Life will offer such a product.

This is probably not a surprise given the low premiums involved, but there is little doubt that some clients will suffer from its absence.

While other forms of income protection may be seen as suitable, more comprehensive replacements, most of the companies offering group stakeholder-friendly contracts still retain this benefit.

It is well worth drawing waiver of premium to the attention of those who are hesitating before taking out their pension.


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