Thousands of employers may be forced to abandon existing group personal pensions in favour of stakeholder if the Government excludes with-profit funds from its proposals.
The life industry fears predictions of a GPP bonanza will prove unfounded as they are caught out by the fact the Government regards market value adjusters as an “exit penalty”.
The Government's key decisions document says GPPs will qualify for exemption from stakeholder if employers make a 3 per cent contribution and the plan has no exit penalties on transfers.
Because of this “penalty” the thousands of GPPs will not be exempt compelling employers to offer stakeholder as well.
Life offices usually reserve the right to apply a market value adjuster to GPP with-profit funds when the policy is encashed or transferred early if investment returns on the fund's underlying assets have not been sufficient to support the bonuses credited.
Providers and IFAs have warned this could force life offices to develop new investment products to bridge the risk gap between cash and equity investments.
Clerical Medical pensions strategy manager Nigel Stammers says: “An MVA is not an exit penalty. It is there to protect all with-profit policyholders.”
Scottish Equitable pensions development director Stewart Ritchie says: “An MVA is a means of delivering fair value to leavers and stayers in a scheme. A MVA should not be classed as a penalty and it is very important the DSS and the Inland Revenue are clear on that.”