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Portrait of stakeholder as a young plan

Can there be an IFA on the planet who has not heard about stakeholder pensions?

In case such a soul exists, here is an outline what has already happened and what we can expect from the next six months in the run-up to stakeholder. You there at the back, sit up and pay attention, I will be asking questions at the end of the lesson.

In a nutshell, the concept of stakeholder pensions came about because there was a big gap in pension provision which needed to be filled.

Many personal pensions were not designed for people on moderate earnings who want to make modest contributions and cannot always commit themselves to making the same payment, month in and month out – not to mention the legacy of distrust left by the misselling scandal.

Put that together with the fact that many moderate earners do not have the option of joining an occupational scheme and it was clear that too many people did not have access to a decent second pension.

Stakeholder was intro-duced to give people more choice and take some of the confusion, complication and rigidity out of getting a second pension. We set out our criteria for stakeholder and we have stuck to them. We wanted to create a product that was safe, flexible and good value for money.

Stakeholders are safe because they will be properly regulated by Opra and the FSA in accordance with our strict regulations. They are flexible because the minimum payment has been fixed at the relatively low sum of £20 a go and you can stop and start contributions whenever you want. They are low cost because we have capped the charge rate at an all-inclusive 1 per cent.

This last innovation, in particular, has already had quite a notable impact on the industry as a whole, with significant improvements being made to the terms of many existing pension schemes.

Yet, as recently as a few months back, I seem to remember there being some controversy about whether provi-ders would be able to offer schemes for under 1 per cent. Now, with many of the big providers – Legal & General, Prudential and Friends Provident to name a few – already announcing their intention to offer stakeholder schemes, the discussion on charges has taken on a new complexion.

The question is no longer whether providers will offer schemes for 1 per cent but how much below the maximum 1 per cent charge rate they can go. At the time of writing, national newspapers are carrying stories describing a price war between some of the big players.

Cheeringly, some providers are now suggesting a 1 per cent charge for stakeholder pensions could even be unnecessarily expensive for members. It just goes to show how much things can change in a few months.

A plethora of other details have also been ironed out recently. By shaking up the tax system, we have opened up stakeholder schemes to non-earners, carers and other people who were previously pre-vented from paying additional money into a second pension.

Thanks to our innovative approach, for the first time, parents can invest in a pension for their children&#39s retirement.

We have made saving for retirement much easier on the pocket by allowing stakeholder members to pay up to £3,600 into the scheme each year tax free.

Another hot topic was concurrency. Would we or would we not allow people in occupational schemes to have a stakeholder pension? We answered that question by putting legislation in place that will ensure anyone can be a member of both an occupational and stakeholder pension scheme as long as their earnings do not exceed £30,000 a year.

Practically speaking, this means another eight million people or, to put it another way, almost 90 per cent of all employees who contribute to occupational schemes will be able to enjoy the benefits of having a stakeholder pension. The last thing we want to do is encourage people not to join an occupational scheme if they have the chance. Now they will not be faced with an either/or choice. If they want, they can join an occupational scheme and keep their own stakeholder going alongside it.

So, give or take a few hundred pages of consultation documents and draft regulations, that is what has happened with stakeholder to date.

But what can we expect over the next six months? During September, thousands of employers across the country received a guide on stakeholder setting out what will be expected of them and how they can prepare themselves.

For employers, the bottom line is that we are not expecting them to set up and run schemes themselves, as that is the job of pension providers. Neither do we expect them to become pension experts, so all you IFAs out there can breathe a sigh of relief.

All employers have to do, if they have five employees or more, is make sure their staff can get access to a stakeholder scheme unless they themselves already offer a good pension scheme.

This week also marks a landmark, as the first stakeholder schemes can start to register. The next big event occurs on April 6, 2001. That is when we stop talking about stakeholder and start making it available to the public.

I hope this pocket guide to stakeholder has proved helpful to all you keen students of pension provision. We have got some exciting times ahead now as stakeholder becomes established in the marketplace. It will be very interesting to see how the situation develops.

I am sure I will be returning to the pages of Money Marketing to keep you abreast of ongoing developments. But, if you only take one thing away from today&#39s lesson, it should be this – whatever the ultimate outcome of stakeholder, it is helping millions of additional people enter the market for a second pension. That can only be a good thing for everyone concerned.


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