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Stake’s evidence

Helen Pow finds that opinion is split on the huge boost to stakeholder sales in the first quarter of the year

Some IFAs believe the huge stakeholder pension sales in the first quarter of 2006 – nearly as many as in the whole of 2005 – are a reaction to A-Day while others suggest it is more likely old business being shifted around the market.

The recent Defaqto pension report shows that 62,000 new single-premium stakeholder pensions were sold in the first quarter of 2006 while 63,000 were sold in the whole of last year. Personal pensions and group pensions also showed impressive sales.

Needanadviser.com director Ashley Clark says IFAs were disinclined to advise their clients on pension products last year because they were aware that A-Day was around the corner and new rules and regulations were about to be handed down.

He says: “2005 was a black hole. Any adviser would have been reluctant to offer advice when the rules and regulations had not been published yet.”

Clark suggests that many IFAs were instead advising their clients to sit tight until the effects of A-Day were clear. In the post-A-Day environment, advisers are more aware and understand what the rules are. Now the black hole is not there and we all know exactly what we are dealing with.”

Hargreaves Lansdown head of pensions research Tom McPhail suggests the impressive sales are dubious and might reflect a one-off event such as a bulk company pension scheme restructuring rather than an across-the-board trend.

He is also confused that 53 per cent of the 500 advisers surveyed for Defaqto’s report ticked stakeholder pensions after personal pensions as their most popular pension product.

McPhail says: “Stakeholder pensions are generally not IFA business unless it is a group arrangement. IFAs are not interested in individual stakeholder pensions because there is no money in it.”

But Clark believes stakeholder pensions are popular with advisers. He says: “The change in the maximum annual management charge from 1 per cent to 1.5 per cent allows advisers to deliver more flexible remuneration charges.” Standard Life marketing and technical manager Andy Tully says a lot of people are buying stakeholder pensions directly from insurers without seeking IFA advice. He believes the simplicity and low cost of stakeholder pensions could be prompting more people to start saving for retirement.

Informed Choice managing director Nick Bamford says: “Hopefully, these figures are indicative of people deciding to save more but the cynic in me thinks it is people moving money around the marketplace. If it is all new, true business, I am stumped as all trends seem to be showing people are confused and are putting off saving for retirement.”

Figures from the ABI show the second quarter of 2006 also recorded impressive sales. Some IFAs believe this quarter would be more reflective of A-Day. Bamford believes A-Day, being in April, was too late in the quarter to have such a massive impact on Q1 sales although he admits the rules were becoming clearer around February and March.

Tully says A-Day is behind the soaring sales. He says it made pensions more flexible, particularly because of the increased allowance in single-premium pensions, up to 100 per cent of annual income, and the ability to have as many pension plans as you want.

Most IFAs are not surprised that single-premium pensions have become more popular than regular-premium pensions.

Bamford says: “The increase in single-premium pensions makes sense. People are very wary of committing themselves to regular payments because they cannot predict the future so they are tending to pay in whenever they have a windfall like a bonus at work or an inheritance.”

Defaqto’s report predicts that in the coming years, IFAs will move business away from the pre-retirement market towards the already retired population.

Clark says: “Demographically, the financial advisers’ hand is being forced for two reasons. The population is aging and more clients are post-retirement and the opportunities that post-retirement options offer are far greater since A-Day so it’s natural that the market is moving towards the post-retirement market as we age.”

Tully expected this migration and suggests that the Government’s National Pensions Saving Scheme, scheduled for 2012, will make it even more likely that IFAs will focus on the retirement market.

He says: “Most pensions will be very low-cost so people will not need advice. A-Day made putting money in more simple but the after-retirement market is still more complicated and people are likely to need advice at that stage.”

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