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Stakeholder lifestyling brings stability to fund

As we grow older, most of us are less willing to take risks. That is certainly true as we approach retirement when we begin to take stock of how much income we will have in retirement and how best to protect it.

I think that people who have joined a stakeholder pension scheme – over two million so far – will be glad to hear that we have brought in new regulations that will reduce these risks further.

That is because from April 6, stakeholder pension providers will have to offer “lifestyling” to those customers who have made no choice about the way their pension savings are invested.

As Money Marketing readers probably already know, lifestyling is an established financial term that describes the procedure of gradually moving money built up in a pension sch-eme into less volatile inv-estments as retirement approaches.

The advantages of life-styling is that pension scheme members are not suddenly faced with a sharp and unexpected drop in the value of their pension pension savings when it is too late to really do anything about it.

Lifestyling will start at least five years before stakeholder scheme members plan to retire and should provide them with a welcome degree of stability as they head towards their third age.

Of course, the idea of lifestyling will not suit everyone so members will be able to opt out at any point before lifestyling is automatically applied to their pension savings.

But from now on, when a person joins a stakeholder pension scheme and does not make any choices about how their pension savings should be invested, their money will be lifestyled.

April 6 also marks the introduction of a few other stakeholder-related chan-ges. For one thing, we are raising the charge cap to 1.5 per cent for new members for the first 10 years, after which it will fall back to 1 per cent. The charge cap for existing members will stay at 1 per cent.

We are also introducing a new suite of stakeholder savings products in res-ponse to recommendations made in the recent Sandler review. These products will be simple to use and easy to understand.

As well as the stakeholder pension, the suite will include a deposit acc-ount and a medium-term savings product. The suite will also include a stakeholder pension and a child trust fund.

But perhaps one of the most interesting aspects of the changes being introduced in April is the way that these products will be sold.

The public wants simple, fast and low-cost financial advice and that is what we want to give them.

To this end, the FSA has developed a new regulatory regime for the new basic advice process that can be used to sell stakeholder products. This process will take the form of a question and answer session between the adv-iser and the customer.

At the end of the session, customers will either walk away with a clear recommendation to invest in a particular stakeholder product or a clear warning that they need to get their financial house in order and what steps they need to take before they start marking long-term financial commitments. Firms will need to get app-roval from the FSA before they can start using this basic adv-ice sales process. But with the public inc-reasingly recognising that stakeholder pensions are a good deal, I do not believe there will be any shortage of volunteers.

In the wake of the new Pensions Act, we are making more improvements to private pensions, too. Most notably, we will be removing indexation from defined-contribution schemes, which will give scheme members much greater choice about what sort of annuity they buy with their pension rights.

I know that this will be welcomed by both scheme members and members of the pension industry.

The creation of the Pensions Commission, the passing of the new Pensions Bill Act and and the recent pub-lication of our document on principles of pen-sions reform shows we are getting to grips with the big picture on pensions while April’s changes prove that we are committed to getting the smallest details right, too.

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