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Tough rules on stakeholder capital

Small product providers will be frozen out of the stakeholder market,

leaving a handful of giant players, if PIA capital adequacy proposals are

implemented, according to leading life offices.

The new rules which are outlined in consultation paper 31 require

companies to meet stringent criteria to become authorised stakeholder


The paper states that companies will have to demonstrate that they can

cover the first three years of a stakeholder scheme&#39s projected losses in

addition to the standard requirements on financial resources set out by the


The report also requires product providers to demonstrate the effect of

the costof stakeholder until they become profitable.

Conservative estimates predict this could be anything from eight years

upwards although the maximum estimate is as long as 20 years.

Clerical Medical pens-ions strategy manager NigelStammers says: “The PIA

areclearly worried about the impact of stakeholder on the financial

strength of companies. I would imagine if thePIA is not satisfied with a

company&#39s loss projections, it could refuse registration.”

Standard Life assistantgeneral marketing manager Colin Ledlie says: “The

industry is expecting the stronger, bigger companies to service the

stakeholder market. They will need the resources to succeed.”

Scottish Mutual pensions development director Leslie Gray says: “The

freezing out of certain players is the way that it has been going for a

while. The stronger mutuals and companies with access to shareholder

capital to draw on will succeed. The withdrawal of Scottish Provident from

the market bears this out.”

FSA spokeswoman Jackie Blyth says: “The reason weare consulting on capital

requirement is to try and find the best way forward.

“Nothing has been set in stone but what we have done is based on what is

best for consumers.”


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