Occupational pension providers are feeling the impact of stakeholder as they move to scrap the complicated old charging structures and put in place a single annual management charge.
Standard Life is the latest to move to a single charge on all its occupational pensions. However, it has gone a step further and limited its annual management charges to 1 per cent, the only provider so far to do so.
On January 14, 2002, Standard Life introduced group plan, a contracted-in group money purchase pension (GMP), executive pension plan (EPP), group additional voluntary contributions and premier, a small self-administered scheme (SSAS), all with a single charge of 1 per cent.
However, it is not the only occupational pension provider offering products with a single charge. Money Marketing online shows there are three GMP schemes with a single annual management charge. Friends Provident's new generation company pension scheme charges range from 0.4 per cent to 1.5 per cent, Norwich Union's variable money purchase plan (mono-charged option) charges 0.7 per cent and Royal & SunAlliance's company pension scheme charges 0.7 per cent to 1 per cent, depending on fund size.
There are also three EPPs with a single annual management charge up to 1 per cent. These are Clerical Medical's Future Proof EPP, Merchant Investors' executive pension portfolio and Royal & SunAlliance's EPP. But, there are no other SSAS products with a single annual management charge.
Because SSASs can be tailored, there will be services required which may incur extra costs. But, Standard Life says it has the necessary administration systems to enable it to reduce costs for all new occupational schemes. It also says that due to its financial strength, and IFAs' willingness to forego commission, it can absorb costs for existing schemes switching to the new charging framework.
John Lawson, senior technical manager at Standard Life, says: “For example, a typical SSAS on the old charging structure would give £3,500 initial commission to IFAs, but IFAs are deciding to give up a lot of commission under the new charging structure and this helps us to run these products this way.”
Financial strength plays a big part in this move to a single charge. The problem for less financially secure providers is not being able to afford a single annual management charge for existing schemes. Bob Perkins, financial planning consultant at Momentum Financial Services, is unsure how Standard Life will maintain the 1 per cent charge across the board. He says: “With EPPs, Standard Life has a master trust, so every new scheme fits one set of rules. This means Standard Life does not have to get Inland Revenue approval for every scheme, which brings down the costs. But with SSAS it would seem difficult to do. It might charge 1 per cent on insured funds, but there will be pensioneer trustee charges and other specialist fees.”
Lawson says that scheme trustees should look carefully at the charges and benefits under the traditional charging structure before deciding to switch. He says: “It may be better value if it proves too expensive to switch out because of high exit charges. Also, if the scheme has paid all the initial charges and the annual management charge works out lower, it does not make sense to switch.”
Amanda Davidson, director of Holden Meehan thinks it is about time occupational pensions fell in line with their individual counterparts. She says: “Yes, I think pension products should have parity of charges across the product ranges. Stakeholder led to the charges on individual personal pensions falling in line with stakeholder. It depends on the structure of the scheme, but I can see no obvious advantage in keeping with the old charging structures if there is no reason to stay with them.
“Standard Life is being very aggressive and wants to be the major player in this market. EPPs can be run on a single-charge basis. A bog-standard SSAS is like an EPP, but things like property purchase will have to be costed in and Standard Life must have given itself leeway to charge additional fees.”
Standard Life Reprices EPP
Standard Life has ditched its existing range of occupational pensions in favour of single charged plans. The single-priced range consists of executive pension plan (EPP), group plan, group additional voluntary contributions and premier small self-administered scheme (SSAS).
Looking at the EPP in more detail, it provides access to 20 Standard Life funds that cover areas such as the UK equity, European, property, fixed-interest, Far Eastern and ethical funds. There are also eight external fund links from Deutsche, Fidelity, Gartmore and Threadneedle.
EPPs are still a niche product and are often used by directors of small companies and senior employees at large companies who may get a say in their employee benefits packages. Although the market is relatively small, it is unlikely to disappear altogether. This is because EPPs have some advantages over personal pensions and stakeholder schemes. For example, an employer can make a single premium contribution to allow an employee to catch up on a missed contribution.
The Standard Life EPP is more competitive in terms of charges than Skandia's Multipension executive pension, which has an initial charge of 5 per cent and an annual management charge of 0.75 per cent. However, the Skandia product offers an impressive range of 222 external funds which may justify the higher charges if the best performers can be chosen.
According to Standard & Poor's, four Standard Life funds are first quartile, five are second quartile, five are third quartile and two are fourth quartile based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to February 1, 2002. There is no three-year past performance for the with-profits, global selector, UK smaller companies and structured funds.