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Stakeholder is stoking GPPs

Now that we have the final DSS stakeholder regulations it is possible to

start drawing conclusions about the relative attractions of stakeholder and

group personal pensions from the viewpoint of a small or medium-sized


It is hard to escape the conclusion that stakeholder is loaded up with

hassles for smaller employers.

Hassle number one is with-profits. Given the Government&#39s target group for

stakeholder, few would disagree that with-profits is worthy of serious

consideration. Yet it seems from the final regulations that, in practice,

the employer will not be able to offer with-profits under stakeholder. It

is available under GPPs.

Hassle number two is consultation prior to selection of the stakeholder

scheme. The employer must consult employees and any trade unions before

making the selection. Of course, the employercan do this but it is another

hassle which is not necessary with GPPs.

Hassle number three is workplace access. The employer must allow representa

tives of the selected stake- holder scheme to visit the workplace and

discuss the stakeholder scheme with employees. Nobody knows how disruptive

or intrusive that will be in practice. It is another hassle which need not

happen with GPPs, since the employer can tailor access for GPP providers or

advisers as appropriate.

Hassle number four is decision trees. The employee will be offered help in

working through the decision tree, with the cost of this help being another

expense to be met within the 1 per cent charge cap. But it is clear from

the FSA discussion paper that often the outcome will be neither yes nor no

but maybe.

In the absence of individual advice (see hassle five) the risk is that the

employee will ask the employer whether this is a good thing to join. It

would be illegal for almost all employers to answer yes or no because they

would be giving advice. The employee is left high and dry – another hassle.

The GPP approach can ignore decision trees.

Hassle number five is the tax treatment of individual advice under

stakeholder. There are definite problems about the income tax treatment

for the employee, whether employee or employer pays for it, and there may

be a VAT problem as well. Under GPPs, the charging structure can be

tailored to pay for advice as needed out of contributions which have

received tax relief.

Hassle number six is written notification about changes to stakeholder

payroll deduction. Regulations 24 and 25 constitute a page and a quarter of

detailed requirements for the employer to follow – another hassle which

does not apply to GPP.

Hassle number seven is that a stakeholder schemecannot accommodate

integral life cover because the cost would exceed the 1 per cent charge

cap. With GPPs, the life cover could be paid as part of the contract,

albeit subject to the 10 per cent of total premium limitation for new

entrants after April 5, 2001.

I have suspected for some time that GPP is the sensible thing for

employers to do if they are willing to pay at least 3 per cent of basic

earnings as an employer contribution.

The more we learn about the detail of stakeholder, the more convinced I

become that this is so.

Given that all employers with at least five employees are going to have to

get involved with some kind of private pension provision, the most likely

outcome looks like being a substantial growth in the GPP market.

If this happens it would be a considerable irony for the stakeholder

initiative but it would be demonstrably in the public interest. At least

privately, the Government ought to be well pleased.


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