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The hard line on stakeholder

Thirty-four stakeholder sellers have rushed to make the starting line. The gun has been fired. Now what should they do?

What advice should they be offering to potential buyers? It is easy if the applicant is on a high income and wishes to buy stakeholder plans for his or her children. Similarly, there is no difficulty in selling to what will be one of the biggest groups purchasing stakeholder – non-workers. Accountants will fail their duty to higher earners if they do not ensure that non-working wives, husbands or partners have a stakeholder bought for them and thereby gain an additional 28p tax perk per pound contributed.

By a strange irony, the difficulties come when one of the Government&#39s stakeholder target group presents themselves as a customer. How is a company going to give sensible advice to a worker on, say, £14,000 a year and ensure they will not be open to a misselling charge further down the line?

Offering advice to the stakeholder target group would be difficult in any circumstances but the Government&#39s pension strategy has made that task infinitely more difficult.

Take the worker on £14,000. Can anyone with any confidence say this worker will be better off with a stakeholder than settling for membership of the state second pension?

The S2P is a good deal for the low paid – infinitely better than Serps which it replace – but it will be open to the same kind of political attack. It is unfunded. If the past is any guide, how long will the S2P survive unscathed?

Only sellers who believe the S2P will end up in the same knacker&#39s yard as Serps could confidently push stakeholder for workers towards the bottom half of the target group. How could you advise lower-paid workers earning above the £9,000 ceiling suggested by the Government for membership of the S2P even when the stockmarket was enjoying a 10-year boom?

During this Parliament, the Government introduced the minimum income guarantee and linked it to earnings. How many of the lower paid will be able to save enough to convert into an annuitised income which will be above the Mig level when they come to retire?

Again, sellers may judge that the Mig in its current form will not last. That is my view. But I do not sell stakeholder and it does not matter very much whether my guess is right or wrong. The judgement of sellers, however, is vital if they are not to mislead savers and thereby open themselves to a misselling charge.

Then again, how does the proposed pension credit fit into this scheme of things other than making the advice about buying stakeholder even more risky? Many people have picked up that the pension credit pays a bonus on top of a person&#39s savings. That is not quite right. What the credit will do is to compensate partially some savers for some of the loss of Mig income which results from their savings. Will sellers have time to explain that complication to potential stakeholder buyers?

As if this was not complicated enough, sellers will also be faced with workers in personal pensions who want to switch to stakeholder. But stakeholder charges are only a good deal for people who have not already paid up front for their personal pension. Once a substantial part of these personal pension charges have been paid, I would judge it doubtful that it would be beneficial to move to a stakeholder plan.

Pity the poor stakeholder seller. But pity is unlikely to go to those companies which have tried to steal a march on others over the past six months and have made the most extraordinary claims for their stakeholder products. My guess is that those ads will feature prominently should there be a stakeholder misselling scandal five years from now.

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