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Stakeholder – the target is moving

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&#39t – 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

financial advice.

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&#39s 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&#39s new launch Evergreen and National Mutual&#39s

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

support stakeholder.

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

related business.

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

their pension?

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.

Panel Members

John Glendinning,Director ofpensions development. Scottish Amicable

Brian Newbould,Senior manager(pensions development), Skandia Life

Iain Oliver,Pensionsmarketing manager,Norwich Union


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Independent View

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