View more on these topics

Take cover

The rules for stakeholder pensions could have serious implications for investors transferring from a personal pension with life cover included to a stakeholder pension with the same benefit from April 6.

Investors may find that they are unable to have the same level of life cover as before because the new calculation method means the same level of cover would require a bigger pension contribution. And the 1 per cent annual management charge may make it impossible to make any allowance for life cover.

Currently, the amount of life cover that can be bought is a proportion of the pension contribution. Pension contributions are linked to a percentage of earnings, which change dependent on age. But life cover will never exc eed 5 per cent of the contribution.

For plans taken out from April 6, the maximum level of life cover available will be calculated as 10 per cent of contributions for personal pensions and stakeholder pensions.

In the table of individual stakeholder-friendly plans below, seven include life cover now but the plans from AIG Life, Barclays Life, Friends Provident, Nor wich Union, Schroder and Virgin Direct do not.

The industry is in agreement that if life cover is provided with a stakeholder pension, it has to be done under a separate arrangement. And the 1 per cent annual charge cap seems to be the industry&#39s main sticking point.

Frie nds Provident head of stakeholder strategy, Paul Stanbridge says: “I can see two problems. The cha nge in the calculation basis of life cover could leave little or no allowable contribution with which to provide life cover. And the underwriting pro cesses will slow down but administration costs will go up, placing the 1 per cent charge under strain.”

Scottish Equit able director of pensions dev elopment, Stewart Ritchie says: “With stakeholder-friendly plans there is no problem providing life cover, but with stakeholder plans the cost must come from within the 1 per cent charge cap. It is therefore not practical to include life cover.

“In theory, stakeholder contributions can fluctuate and even stop, so under the new rules it could be virtually impossible to provide the level of cover specified for a client. “But this does not stop a packaged arrangement with separate life cover being sold by IFAs at the same time as the stakeholder plan.”

High clere Financial Ser vices Partner, Alan Lakey says: “A client who has a personal pension with life cover included but transfers to a stakeholder on the same basis may have a problem in that the same cover level may not be achieved due to the new way life cover will be calculated. The reason behind the change in calculation could be that the Treasury does not wish to continue subsidising life cover.”

The stakeholder-friendly pension market has already sustained its first casualty with Equitable Life closed to new business from Decem ber 8. This brings the number of companies offering individual products to 13. With the addition of Scottish Life in the group market there are now 20 players.

So far, only 23 companies have had their plans app roved by the Inland Revenue and Opra. These are Abbey National Life, Axa Sun Life, Barclays, Britannic, CIS, Clerical Medical, Friends Provident, HSBC, Legal & General, Marks & Spencer Financial Services, NatWest Life, Norwich Union, NPI, Pearl Assurance, Prudential, Royal & Sun Alliance, Royal Liver, Royal Scottish Assur ance, Scottish Life, Scottish Mutual, Scottish Widows, Standard Life and Virgin Direct.

All these plans are designed for individuals and groups.


Widows pension offers external funds

Scottish Widows is offering a stakeholder pension which gives policyholders access to external funds and pays standard Lautro commission levels. The company says its plan meets the Govern ment&#39s standards as well as offering access to a range of 17 investment funds managed by Widows and funds from Merrill Lynch, Schroders and Newton. Widows says […]

Protection from the elements

Over the next few months, there will be a focus on stakeholder pensions in much of the media. Such saturation coverage will have the effect of raising public awareness about the importance of retirement planning. But the arrival of stakeholder pensions will affect the way IFAs transact their business. Stakeholder decision trees could dilute advice […]

Clerical sets up offshore seminars

Clerical Medical is holding seminars aimed at hel ping IFAs exp lain the benefits of offshore investments. The seminars, starting on January 29, will explain how Clerical believes offshore products offer solutions to financial objectives of high-net-worth clients. The company believes these clients are likely to have diverse financial needs, inc luding estate planning, tax-efficiency, […]

Scottish Life management appointments

Scottish Life has appointed two new members to its management team. David McKenzie is the new senior product marketing manager and is responsible for developing promotional literature and product support services for IFAs. McKenzie was formerly account manager in Prudential&#39s corporate pensions division after spending 10 years at Scottish Amicable. Paul Spriddle has been appointed […]

Parental leave and pensions

Fiona Hanrahan  – Senior Product Insight and Technical Support Analyst We are often asked how parental leave impacts workplace pension schemes in terms of funding in general, auto enrolment and salary exchange. This article will explain each of these. How does parental leave impact the funding of workplace pension schemes? A member of a defined […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm