The Government has bowed to industry pressure on stakeholder pensions and raised the price cap to 1.5 per cent for the first 10 years and then reverting to 1 per cent.
The Treasury claims it has struck a balance between the needs of the industry and consumers but providers say they are still reticent about whether the Sandler suite will be economically viable.
The products will be introduced in April 2005 with medium-term investment and pension products capped at 1.5 per cent for the first 10 years and 1 per cent thereafter.
The cash deposit savings product will offer interest within 1 per cent of bank base rate. This is a reduction on the 2 per cent currently allowed in cash Isas.
Both the TUC and the Consumers' Association condemn the rise. The CA says it will invite misselling by rewarding the industry with higher charges while stripping it of responsibility for its actions.
Standard Life says the Sandler suite is unworkable even with the increase in the cap. Marketing managing director Simon Douglas says: “The product is very unlikely to be successful with this price cap. The structure is a poor deal for consumers. For lower savings levels, it does not address the fundamental problems with the old cap. For higher savings levels, we can offer better products below the level of the price cap.”
Companies such as Norwich Union which lobbied hard for an increase have given the increase a lukewarm response.
Sales and marketing director Peter Hales says it is enc-ouraging in terms of group business but the effect on individual pensions would be difficult to determine.