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Three providers lay their stakes

Following CGU Life&#39s entry into the pre-stakeholder market with its new product, Your Pension @ CGU, we asked our broker panel to compare it with Equitable Life&#39s 2000 personal pension plan and Friends Provident&#39s New Generation plan.

Commenting on the mar-ket suitability of the CGU plan compared with the Equitable Life and Friends Provident products, Price says: “The CGU plan is in line with those contracts on the market that are recognised as fully stakeholder-compliant, based on the published rules to date. These include both Friends Provident&#39s New Generation plan and Equitable Life&#39s 2000 plan.

“The market suitability of CGU&#39s plan is hampered to the same degree as other stakeholder plans in that client awareness about stakeholder at both individual and corporate levels is limited. However, in light of the fact that it is not long before stakeholder is introduced, CGU has moved to ensure that it will be in pole position for launching into this market.”

Hall says: “CGU&#39s product appears to comfortably meet the expected requirements under stakeholder pensions. As with Friends Provident and Equitable Life, I envisage its launch now is an attempt to place itself firmly as a stakeholder provider. I would expect this type of plan to be attractive to those individuals who either do not currently have a pension or are contributing small amounts, rather than those who take a more active approach to retirement planning.”

Rawnsley says: “The CGU plan is very similar to those offered by Friends Provident and Equitable Life, which is understandable as they all need to meet the stakeholder rules. If an adviser is looking particularly for financial strength, this can be found with CGU and not the other two.”

Looking at the marketing opportunities that the CGU plan offers compared with the other two, Lewis-May says: “The active or passive fund management possible with this contract should be exploited. It should be a great advantage to this product to offer the policyholder the advantages of participating in the active management of his pension fund. The vast range of funds which are available should satisfy any investor.

“For Friends Provident, the comprehensive range and product style are traditional to this company. The introduction of an ecological fund and its past performance should be a large sales pointer.”

Rawnsley says: “CGU offers immense financial strength and stability relative to the other two. Otherwise, the marketing opportunities are no different from the other two.”

Hall says: “The CGU plan has no significant advantages over Friends Provident and Equitable Life in terms of marketing opportunities. The stakeholder concept itself creates the marketing opportunities rather then the individual plans.”

Turning to the structure and flexibility of the CGU plan compared with the other contracts, Price says: “All three providers offer a wide choice of funds which have varying degrees of risk. CGU and Friends Provident both offer 15 funds and Equitable Life 19. These are their own funds and a critical factor in choosing the right provider is going to be fund performance.

“CGU uses Morley for its in-house with-profits fund management and, with Norwich Union on board, will have a strong investment team. Friends Provident and Equitable Life have had strong in-house fund performance over the years, particularly with regard to with-profits performance.”

Hall says: “CGU&#39s plan would appear to be as flexible as the plans from Friends Provident and Equitable Life, as this again is part of stakeholder requirements. CGU has 15 funds investing in a range of sectors – the same as Friends Provident but four less than Equitable Life. The funds available under CGU should meet most investors&#39 requirements.”

Assessing the useful features and strong points of the CGU product compared with the other two, Rawnsley says: “Financial strength and stability are the main strong points of CGU compared with the others. CGU&#39s recent with-profits fund performance is also very competitive and I expect this to be maintained, whereas less strong companies may struggle to maintain competitive bonus rates.”

Lewis-May says: “The with-profits fund is an important part of the CGU product, filling that much publicised need for consideration in pension funds. It should, coupled with the 14 other funds available to the policyholder, be capable of satisfying the need of the most fastidious investor. For Friends Provident, the offer of the fixed-interest fund could be considered attractive for the ultra-cautious or late joiner with only a few years to accumulate a fund.”

Price comments: “I perceive the strong points to be not so much related to the contract itself but to the relevance of the company. Therefore, the following points arise under this question – the size and strength of CGU, along with its strong investment team capability that is likely to be enhanced with the merger with Norwich Union, as well as the fact that the CGU product is free of charges until stakeholder comes in.”

Looking at the drawbacks of the CGU product, Lewis-May says: “With the amalgamation of Commercial Union, General Accident and Norwich Union, will this affect future performance in the short term? Perhaps this should be a company to put on the back burner until time and circumstance has created a settled environment.

“The drawback to the Equitable Life product is that, with the constant threat of demutualisation, how long will it survive? A very diverse collection of funds is offered by Friends Provident. It has invested wisely and, in addition, offers one of the leading with-profits funds.”

Rawnsley says: “While CGU&#39s with-profits past performance is competitive, its main unit-linked funds have performed in line with or below the average and less well than Friends Provident or Equitable Life.”

Price comments: “CGU does not show the fund-based charges in its general literature but does show these on its website. Friends Provident has been active in this market with its contracts much earlier and has established an early name and reputation.”

Commenting on the three companies&#39 reputations in the pension market, Hall says: “The merger of CGU and Norwich Union will place the company in an even more dominant position, especially in the stakeholder market, where profit margins will be thin. Friends Provident has announced it will demutualise in 2001. I do believe, however, that if Friends Provident is not to become a niche player in the IFA sector, it will need to consolidate with another company. Experience in Australia has shown that in the stakeholder market, only big players survive.

“Equitable Life has the ongoing guaranteed annuities fiasco to contend with, which may force the company to demutualise. In addition, Equitable&#39s reputation among policyholders and the public must have suffered following the attempt to reduce the value of the guaranteed annuity and the subsequent court case.”

Lewis-May says: “CGU is very well known in the industry and the public. This has been achieved by judicious use of media management and press releases displaying the skill and assiduity of the recent amalgamation of Norwich Union into the company.

“Friends Provident has gained a very high profile with its stewardship fund, the recent success of which has received a large amount of support from the public. However, Equitable Life does not enjoy the market popularity that its products should carry. Also, the company was recently embroiled in a court action regarding guarantees and annuities.”

Looking at the product literature and sales aids, Rawnsley says: “The main product guide from CGU is the best of the three – the headings are clear and relevant and the pages are uncluttered. There is even the possibility that a client may read it all the way through. Equitable Life&#39s booklet has a clear index but each page contains a lot of information, which might overwhelm some of the target audience. Friends Provident&#39s literature contains all the relevant information but is dull.”

Rawnsley concludes: “While the principles behind the stakeholder legislation are commendable in providing a simple and cheap product, many IFAs will find the individual stakeholder market unprofitable as commission levels are generally low and there is bound to be some resistance to fees at the lower end. Therefore, will there be proper independent advice available to that part of the market?”


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