Alongside this, however, has been the need for significant capital investment in the new systems that are required for any new product. Paying for this investment will have to be factored into the ongoing admin costs from April 6.
Naismith: In the short term, costs have increased because any changes in legislation inevitably produce system and transition costs. However, in the longer term, costs should be lower. There will be less checking needed by insurers and advisers, for example, of earnings and maximum permissible transfer values.
The possibility of electronic dealing – without the need even for a signed application form- should also bring long-term savings although it will take some time for people in the UK to accept this as a way they want to deal with their finances.
Craig: The simplification of the DC tax regime should help to reduce admin costs. However, there are other aspects of the pension regulatory environment, such as contribution control legislation, which will push up costs.
Is it right that moneylaundering rules cover personal pensions?
Clarke: Personal pensions may not seem the obvious vehicle for money laundering but it is entirely appropriate that the same rules apply to them as do for other financial products. For example, someone could put a lump sum into a new pension, cancel the policy and then take away the refunded cheque from the provider.
Verifying the identity of a customer is basic good practice and, inevitably, if pensions were left outside the scope of money-laundering rules, then this would easily become a loophole to be exploited by unscrupulous people. I do, however, feel there is scope for a lighter touch for enforcement within the worksite situation.
Naismith: Yes. Although the attractions of personal pensions are arguably lower for money launderers than other investments (because they can't easily withdraw the money),we believe it is right to have consistent rules for all payments made by individuals.
Craig: It is not clear that there is any significant risk of personal pensions being used for money-laundering purposes. However, now that the money-laundering rules have been extended to incorporate personal pensions, it will be important to take a pragmatic approach to the monitoring req-uirements, particularly for group personal pensions.
For new corporate pension business, out of stakeholder and group personal pensions, which schemes do you expect IFAs will be selling more of?
Clarke: Particularly with the appeal of low charges and high flexibility, stakeholder is more likely to become the dominant force in the group DC market and should be the main seller. It is important to avoid adopting a one size fits all approach and GPPs will still form an important element for pension advisers, alongside other pension options such as Sipps, SSASs and EPPs.
If we are to serve a diverse customer base properly, then it is important that we have the diverse and appropriate range of products needed to meet their needs.
Naismith: From a compliance viewpoint, stakeholder is much easier for an IFA to justify and in the longer term we believe that most employer-sponsored schemes will go down this route. GPPs will be recommended for more sophisticated groups who want greater flexibility and are prepared to pay a little more for it.
It may also be recommended where with-profits investment seems appropriate for the workforce because the stakeholder rules make with-profits very difficult.
Finally, there will also be employers who feel that, on balance, their admin is slightly easier with a GPP although there are advantages and disadvantages with both.
We see both stakeholder and GPP markets continuing to flourish but probably with the balance tipping towards stakeholder.
Craig: There has been huge growth in sales of group personal pensions over the past few years. The early indications are that while stakeholder will inevitably take a significant share of the group pension market, the freedom to tailor services, without the restrictions imposed by the 1 per cent charge cap, will continue to make GPPs attractive to IFAs and their clients for some time to come.
What can be done to boost individual stakeholder sales within the Government's target market?
Clarke: Although compulsion is the quick fix that would force the target market to buy stakeholder, this would very likely prove unpopular with individuals and politically unattractive to the Government.
A more innovative option would be to take a creative look at how the taxation system could be used to encourage individuals to plan for their retirement – the carrot rather than the stick – by providing incentives direct to individuals or to those employers who encourage high levels of pensions uptake or even a combination of the two.
If compulsion is to be driven forward, then the most politically acceptable option would be obliging all employers to make some pension contributions for their employees.
Naismith: Realistically, people in the target market are only going to start a pension if they are forced to or if there is an incentive to do it.
This means that to attract this group, the Government either needs to introduce compulsion or give employers significant tax breaks to those who contribute.
If the employer contributes, employees are more likely to as well, especially if the employer offers to “match” their contributions. This has significantly helped with take-up of 401(k) plans in the US.
Craig: It will be extremely difficult to increase take-up among the Government's target market because few of these people have any significant disposable income once all their higher-priority spending needs and wants have been met.
Those that are able to afford to save are unwilling to lock their savings away for 30 years or more and then there is the potential for losing out on state benefits at retirement. Removing the disincentives to pension saving would partially help.