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Reducing returns

Equitable Life&#39s decision to close for new business re moves it from the individual stakeholder-friendly fray but still leaves 13 on the table. Group stakeholder-friendly providers number 20. This, as I argued last month, will still be too many and something will have to give.

Barclays Life&#39s contract has been the cause of much comment in the press and even among some IFAs I have spoken to whose clients have received details of the plan. The special offer has attracted a great deal of interest, with some people having interpreted it as meaning free of charges for life which, of course, it does not.

It means a saving of maybe £20 to £30 in the first year for a large contribution or, put another way, about two weeks&#39 worth of chocolate for me. Barclays appears to have been very active in some sectors and employers driven by cost may well find the contract just up their street.

Bank and building society pensions have, in the past, been characterised by high charges. This no longer app ears to be the case in the stakeholder environment but the contracts still appear to fall short of others in terms of numbers of funds available in a similar manner to most of the direct offerings.

Barclays offers a choice of four plus a lifestyle option, Abbey National offers five. Compare this with the company that falls between them in the table. AIG Life offers an extensive range of guaranteed options, although these have been out of favour recently, together with 25 funds from some big name investment houses. The offering from Eagle Star has 48 funds.

Of course, we may be looking at entirely different market segments here. People who are likely to buy their pension from their bank may not care about the investment choices, just as long as they do something.

Moreover, employers who really see stakeholder as an imposition might actually welcome a restricted investment choice since it will reduce the number of enquiries they have to face from employees. But I still wonder if that many people really want to buy their pension from their bank.

Equitable Life&#39s plight may also highlight the position of with-profits funds. There are six individual plans and 14 group contracts offering a with-profits option, which may well be a selling point.

These funds have traditionally been seen as a safe option but this position is now in doubt as bonus rates red uce and it becomes clear that there are other, often hidden, factors that can impact re turns, sometimes dramatically.

With-profits funds are, by their very nature, opaque and difficult to comprehend. It is certainly a good start to view them as with-profits-and-losses funds and remember that most IFAs would not normally invest in something they do not fully understand.

It is always worth questioning which companies are setting rates prudently. This requires a high level of understanding and knowledge of the pro cesses of the companies invol ved. Other factors for IFAs to consider are:

Financial strength of the provider.

Continued reasonable in vestment performance.

Ongoing administrative efficiency and flexibility of systems.

Quality and speed of information to the policyholder and adviser.

If an office is lacking in any of these areas now, is there any reason to suppose it can change in a tougher market? Some will argue that brand is a consideration but if this is not supported by these factors even the brand may not survive. Some IFAs will also question whether with-profits is really a suitable investment for the majority of clients.

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