Pension providers face more than a decade of losses on stakeholder pension plans if they try to pay IFAs commission, according to actuarial calculations carried out for Money Marketing.
Actuarial projections calculated on stakeholder profits show the break-even point for IFA-commission-paying stakeholder plans is up to 11 years after start-up.
Comparable figures for internet-based distributed schemes show a life office could break even after two years.
The research confirms only those life offices with deep pockets will be able to compete. It will also stoke fears among the biggest providers that vulture funds may swoop to take their stakeholder business long before they have made a return on it.
A typical IFA stakeholder product paying commission of 42 per cent of Lautro rates and 0.5 per cent renewal commission with the same level of charges will not break even for 11 years.
A plan based on 0.3 per cent fund-based commission for IFAs also takes 11 years to break even.
The findings show that life offices could be taking a gamble by choosing IFAs to deliver stakeholder market share with much of the cru-cial early years' costs leaving them open to predatory vulture funds.
The actuarial scenarios illustrate how life offices will have to manage costs to stay within the 1 per cent charging cap while working towards profit.
The models suggest IFAs working with stakeholder face the potential of being forced out of the market.
Legal & General pensions marketing director Andy Agar says: “These figures do not surprise me. They show that high levels of commission are not supportable.”
One industry expert says: “These figures clearly show that pressure on margins means stakeholder may have to be offered without advice.”
Standard Life assistant general manager (marketing) Graham Storrie says: “We have all generally accepted the industry is under significant pressure. We and IFAs have got to look at the efficiency of our businesses.
“There is potentially a threat from vulture funds. One sensible way of dealing with this is to reduce the annual management charge as the funds under management increase.”
Details and break-even statistics, p12-13.