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Stakeholder – the break-even points

Research by Money Marketing reveals life offices are facing massive losses if they want to compete in the stakeholder pension market.

The research shows that even under the cheapest model, where no advice is provided and administration and sales are completed via the internet, it would still take at least three years for the provider to recoup its costs.

The figures confirm the industry&#39s worst suspicions that stakeholder will pose a huge threat to life offices and IFAs. The providers could struggle to fend off vulture funds while trying to secure market share through IFAs with competitive commission structures.

MM&#39s cashflow analysis demonstrates the break-even points for different stakeholder business models based on a number of assumptions.

The figures were produced assuming a standard 7 per cent growth rate on contributions and include all charges that providers have to cover within a 1 per cent annual charging cap. These include initial set-up and servicing charges, fund management expenses, distribution and any commission charges. All examples are based on a retirement age of 65 paying regular contributions of £100 a month over 25 years.

The fund management expenses have been varied as a percentage of annual management charge, depending on which business model is used.

Product A is an internet-based stakeholder with online guidance in the form of decision-trees plus online application and administration.

Product B represents a hypothetical affinity-based stakeholder with no distribution costs.

Product C is an IFA-distributed product with 0.3 per cent fund-based commission.

Product D is also an IFA product but with commission set at 42 per cent of Lautro rates plus 0.5 per cent renewal commission.


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