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Standard says relax cap if compulsion comes in

Standard Life claims that introducing compulsion on stakeholder at 4 per cent of earnings would make it impossible to show a profit unless the 1 per cent price cap is relaxed.

Standard says compulsion at 4 per cent would draw a deluge of low-paid workers into stakeholder schemes and would almost halve average annual contributions.

It estimates that bringing more than 11 million employees and two million self-employed workers, most on lower incomes, into stakeholder would cut average annual premiums per policy from £1,500 to £880.

Standard says the basic admin cost of running a pension makes operating stakeholder unworkable for those very workers the scheme was set up to help.

But rival providers argue that the economies of scale that compulsion would bring outweigh the cost of administering loss-making pensions for low earners.

Standard Life senior technical manager John Lawson says: “We cannot make money on 4 per cent compulsion with a 1 per cent price cap. Contribution size is one of the key factors that make stakeholder profitable.

“Compulsion at 4 per cent of average earnings would bring our average contribution down from £1,500 to £880 a year. If compulsion did come in, it would have to go hand in hand with a relaxation of the 1 per cent cap.”

Norwich Union head of individual pensions Ian Buckle says: “Premium size is a major factor but more important is persistency and the term of policies. We do not want to write lots of £30 or £40 a month policies but we are not in the business of excluding anybody.”

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Case study: administration — implementing a management log

Our client is a leading video game and publishing company best known for its console role-playing game franchises. The client provides a number of benefits, at varying levels and cost that attract a P11d liability. With the absence of a management log to track data for benefit movements, enormous administrative and therefore cost implications were occurring each year just to comply with P11d reporting requirements.

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