How would you encouragethe average person to buya stakeholder?
JG: A twin thrust of quality promotion, including individual advice where
appropriate, from qualified advisers and improved understanding and
awareness of financial requirements at different lifestages will help
consumers choose from the options available for their financial planning,
with stakeholder one of those options.
We have already seen a growing recognition, especially among the young,
that the state will not maintain lifestyle through retirement for the
average person and a greater willingness to embrace self-provision as the
best way forward.
Over time, we may seea cultural change embrac-ing wider recognition of the
value of private pension provision become increasingly established. Those
behavioural changes will be reinforcedby an increasing number of employees
retiring with private pensions and with a better life in retirement as a
BN: I wouldn't – for the same reason I would not encourage anyone to sort
out their inheritance tax affairs by buyinga DIY will kit from WH Smith.
For pensions, individuals should always start by seeking independent
IO: The key to getting to consumers is through the employer. Their role is
key to generating the motivation for people to contribute to either a
stakeholder or a suitable alternative. Provider support aimed at helping
the employer will be a vital component for success. The self-employed need
professional advice but remuneration for the adviser within the limits
imposed is still a debatable topic.
Do you think the Government will hit its target audiencefor stakeholder?
JG: To some degree, yes. But, at the lower earningsend of their target
market,in particular, there must be doubt on whether there willbe much
increased take-up, given other financial pressures on consumers.
The exclusion of 750,000 employees in smaller companies and the lack of
reference to the self-employed also distance those people from the
stakeholder effect. So, in the end, compulsion may be the only way of
ensuring the Government's long-term aim of changing the balance between
state and private provisionis achieved. But the finan-cial services
industry hasthe chance to disprove thattheory in the meantime.
BN: Judging by recent comments from ministers, I am not sure the
Government knows who the target audience is. Stakeholder has always looked
like the first part of a two-stage process to introduce compulsion. The
official reasons for stakeholder have always looked as thin as the contract
terms are unlikely to be the reason those with little money fail to start a
IO: It is fair to say there is confusion about who the target audience
actually is. Those on middle to high earnings are likely to demand more
than a price promise, Stakeholder is unlikely to deliver the flexibility
and choice demanded.
Those on low incomes will not be able to afford meaningful contributions
and this sector can only be covered by an element of compulsion.
How should small IFAs go about surviving stakeholder?
JG: By having a robust and clear business plan and implementing it with
single-minded focus. Different business plans are clearly feasible in a
highly segmented market, ranging from a significant emphasis on corporate
clients and employer-based schemes, to withdrawing from that market and
concentrating on advising individual high-net-worth clients. Remuneration
structures also need to be reviewed, looking at options between fees and
commission or a combination.
BN: It is all about adding value and the new area that is increasing
rapidly is the “at retirement” market. The move will be from new business
advice to ongoing advice as individuals need to convert their accumulated
wealth into a tax-efficient, healthy income stream.
VC: All IFAs, especially the smaller ones, must now model volume against
profitability. Selling volume alone will not be the answer and they must
analyse the balance needed to ensure the business volume sold can be sold
profitably. This will mean looking at their current product business and
realigning strategies where necessary.
Is Britannic Assurance's new launch Evergreen and National Mutual's
decision to become a niche player the start of a wider trend towards niche
JG: In the same way as IFAs need to decide on their business plan,
providers must also decide whether they want to enter the stakeholder
market, and the defined-contribution pre-retirement market generally. The
margins involved in stakeholder and the requirement for significant
investment in e-commerce solutions to achieve the necessary operating costs
for employer, IFA and provider, suggests many providers will not be able to
BN: It is not the start of a wider trend as there has always been a
diverse range of niche players in all financial markets. As with any
dynamic marketplace, you are just seeing organisations moving with the
IO: In the demand for lower price, the market will become dominated by a
small number of large providers, maybe as few as four.
This will squeeze out the smaller providers and their difficulty will not
only be new business but holding on to their existing book as consumers
demand better terms.
Do you think the new pension sharing on divorce rules will give IFAs
greater planning opportunities?
JG: Yes. Solicitors dealing with divorce will need to consider the new
options for splitting pension assets, even if a proportion of cases will
utilise existing options for dealing with the assets of the marriage. The
pension-sharing concept offers IFAs the opportunity of providing support
for the pension-splitting aspects, probably on a fee basis. Support will be
needed in obtaining information and giving advice, with opportunities for
placing pension credits that are transferred out and rebuilding lost rights
for the member. The new provisions only apply to divorce settlements
started after December 1, 2000, so actual fee income is unlikely in the
near future. But building relationships with local solicitors may well be a
valuable investment, which might act as a conduit not just for divorce
BN: Absolutely. Every change and further increase in the complexity of
pensions is an opportunity to advise the public through the mine field. It
further illustrates the importance of having a vibrant IFA market. What
proportion of the public could summarise the impact of the new rules on
IO: Pension sharing on divorce will give IFAs opportunities and will need
to be a consideration as part of planning for couples and how to invest
funds as a consequence of pension sharing. Whilenot a focal sales area, the
subject will generate cross-sales opportunities.
How will the FSA league tables fit in with sales ofpersonal pensions?
JG: The FSA league tables will provide a valuable additional source of
information to consumers, acting as one plank in the creation of better
understanding of financial issues. By raising awareness of pensions and
advocating that peopletake action to deal with their own pension provision
will be a positive message in its own right. And the extent of complexity
may well encourage many consumers to seek professional advice. Research
also tells us that some employees who are offered a company pension plan
will do their own research into the proposition, even where there is a good
employer contribution. The FSA tables will be a valuable support for such
BN: For years the well-known monthly magazines have provided
well-researched and easy-to-use detailed comparison tables on every
financial product. I am not aware the public are champing at the bit for
even more comparison tables. The cost of £10mper year would be better
spent on giving people subscriptions to those magazines.
IO: The FSA league tables will not constitute advice, will not cover
important selection criteria such as investment performance and customer
service and will need strong caveats to discharge any liability from a
consumer making a poor do-it-yourself choice. Advisers will need to be
aware of its existence but it will not form part of the advice process.
John Glendinning,Director ofpensions development. Scottish Amicable
Brian Newbould,Senior manager(pensions development), Skandia Life
Iain Oliver,Pensionsmarketing manager,Norwich Union