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Pricing the market

Marc Jones assesses the main characteristics of stakeholder pensions and the challenge for IFAs to differentiate between schemes

Describing a pension product as "stakeholder-friendly" automatically implies certain criteria such as an annual management charge capped at one per cent and a minimum contribution level of £20.

While the Government has set the standards for stakeholder products, there is still scope for providers to compete on features.

Contribution levels are one area where providers have looked to undercut their rivals. Schroder, Winterthur Life and Scottish Mutual do not specify minimum contributions while Scottish Widows says that it must be at least £1.

AIG Life and Marks & Spencer have a minimum contribution of £10.

Several providers undercut the one per cent maximum annual charge. Some companies vary the annual management charge according to the size of the fund, the amount of commission or the fund chosen.

Schroder, NPI and Norwich Union, on its Designer Pension@Norwich Union group scheme, vary their charges according to the scheme profile. Legal & General and Norwich Union, for example, have introduced tiered charges, so that the more a client invests, the lower the charges become.

Mike Smith, business communications manager at Legal & General says that a one

per cent annual management charge offers good value in the early stages of a pension. He adds: "The more money you save, the more that one per cent will take up.

"For example one per cent of £20 is a small amount of money &#45 20p. But one per cent of £25,000 is a lot more &#45 £250." At its lowest, the annual management charge on Legal & General&#39s pension drops to 0.3 per cent.

The annual charges on Norwich Union&#39s Your Pension @Norwich Union scheme re-

duce to 0.4 per cent for fee-based advice.

Friends Provident&#39s annual management charge floor is also 0.4 per cent.

Some traditional pens-

ion providers, however, have balked at the maximum charge and decided not to enter the stakeholder market at all, or at least for the time being.

Many argue that the one per cent cap will not allow them to cover the cost of administering stakeholder.

Peter Jordan, head of marketing at Skandia Life says:

"Effectively anybody who is going to play in the stakeholder market is going to have a limited budget for putting the product together. You have to work within the areas of charges and expenses such as fund management, commission and administration."

While charges are important, arguably the number of fund links and investment performance are important factors for the long term too.

Jordan points to the wide range of funds that Skandia offers. "We have 220 fund links at the moment, many of which are specialist funds where the cost of running them exceeds the one per cent cap." Virgin by contrast offers two fund links.

Towards the other end of the spectrum are providers such as Eagle Star, which offers 48 funds on its stakeholder- friendly pension and Scot-

tish Equitable which offers 45 funds.

Both providers offer access to funds from fund managers such as Fidelity, Henderson and Deutsche.

However, many firms are unlikely to offer a link to an external fund, because of high administration charges.

One aspect of stakeholder that IFAs will have to concentrate on might be the level of service that providers offer. These include the standard of administration offered and the efficiency of the company.

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