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What L&G isn’t saying in its pension cap crusade


Legal & General has been getting plenty of publicity in recent weeks campaigning for the Government’s proposed charge cap to be reduced to 0.5 per cent for new and existing schemes.

But alongside the crusading “0.5 per cent for all” sound bites there have been few questions about the type of business L&G is looking to attract.

A Money Marketing reader attempting to place a new scheme with the provider was told last week of the strict criteria being applied, including the fact that it won’t offer a scheme for less than 50 members and that average monthly contributions need to be £200 per member. The correspondence is below:

“Unfortunately in respect of this group pension scheme enquiry I regret to inform you that we shall be unable to offer you any terms for this prospect. This decision has been based predominantly on the fact that the minimum number of eligible members that we typically offer group pension scheme terms on is 50. We would also require a monthly average contribution of £200 per member.”

Now when first questioned about this, L&G said the size of schemes it is willing to write is dictated by next year’s staging dates, with 50-249 employee firms taking priority, and that it will be looking to write schemes for smaller employers in time.

This could well be the case, although the wording above appears a bit more definite in its exclusion of smaller employers. Other insurers I’ve spoken to say they are indeed talking to smaller (less than 50 staff) employers ahead of 2015 staging dates. 

With those on average earnings looking at monthly contributions of less than £120, even if the full 8 per cent is contributed from the start, a £200 a month barrier will exclude many schemes.

From a business point of view such moves are understandable. Insurers aren’t charities.They need to ensure the business they write is likely to be profitable based on estimated contribution levels, staff turnover and size of firm. Other providers I’ve spoken to say an average £200 per month contribution is the sort of level where a 0.5 per cent charge becomes workable for smaller schemes. 

But is it right for a firm to be lobbying so forcefully for a charge cap of 0.5 per cent if it may not end up operating in areas of the market where such a cap could hit the hardest?

When questioned again about the high level of monthly contributions required, L&G is now saying that the above communication was made in error and that the two limits quoted are not in fact its policy.

When asked whether it will look to be a “significant” player in the smaller employer market, an L&G spokesman says it is too early to say, although he clarifies that it will definitely “be active” in this area.

If L&G is able to offer a decent pension at very low cost to large numbers of people with small employers and low contribution levels then great. It’s strong track record and resources in passive investing certainly gives it an advantage compared to some rivals.

But alongside its proclamations about the need for an ultra-low charge cap, L&G needs to be clearer about the areas of the market it is likely to be operating in.

Paul McMillan is group editor at Money Marketing- follow him on twitter here


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. It was L&G, as one the govt’s principal advisers, who drove down the pension price cap on stakeholder -look what a great success that was. Since then we have only ever used them for protection when there was no cheaper alternative.

    It is clear that L&G want to plough their own furrow – alone. Equitable used to trumpet they didn’t play well with others – seems L&G forget what happened to them.

  2. By now many must be aware of the low esteem in which I hold life companies. Of them all L&G comes pretty close to the bottom. Their disingenuousness and often plain venality is what irritates most. Of course alongside their industry leading terrible admin.

    Indeed as has been said they were a champion of Stakeholder at the outset, trying to down bid charging and hijack the halo of the most Stakeholder of Stakeholders.

    Odd that a few years later (and today) if you ring up for a Stakeholder quote the call centres do their utmost to persuade you to buy something else as being preferable. When you do get your Stakeholder, you don’t get contract notes when contributing single premiums and the cock ups and poor admin set new lows for standards.

    One has to conclude that they really are not interested in the business from journeyman advisers and just want to hoover up that which is introduced by the really big players (and the banks if ever they re-enter the fray). In this way they don’t have to worry about admin, as these players provide scant advice for the members of these schemes anyway.

  3. L&G! Co-defendant to the charge of destroying the personal pension market.

  4. Whilst you may have a point you seem to have missed the key fact in all of this.L&G have a large range of tracker funds ,which mostly offer charges below 0.5%, so its in their interest to have a low cap as it will drive everyone to these low cost, yet profitable funds, en masse.That is where they are really coming from ,everything they do now is based on return on capital .Its the main reason they bought Cofunds, whilst at the same time slashing their presence in the IFA market for pension/investments in 2012.Its all about funds under management with as few costly staff as possible. Do I blame them ,no. They are about getting a return for shareholders and are not a charity or government department and if IFA’s/clients do not like them they can go elsewhere ,as the contributor above points out.The margins in manufacturing products are now so low the industry has to look elsewhere for profits, in the same way IFA’s have segmented their clients and the business they can afford to offer without cross subsidising, in the RDR world.

  5. @PaulB
    Don’t have problem with them bottom fishing as their business model. it is their constant carping that everyone could and should do it the same way i.e. with a charge 0.5% charge cap that I find offensive (particularly when they even don’t even offer it themselves as the article demonstrates)….

  6. We all know that L&G are not interested in the real AE population. The adviser community should call their bluff and flood them with enquiries, maybe then the DWP will see them for what they are.

    The issue isn’t whether they will accept the 0.5% business, but whether they are speaking with forked tongue to aggitate

  7. They’re just saying that, like the other big providers, they’re not interested in A-E business from smaller, or lower paying, employers – but anyone else who’s mug enough to go for that sort of business should have to do it at what they deem an unprofitable rate.


  8. I’m no fan of L&G, quite the opposite. But, on this one, I agree with them. If, because of the government having decided to impose a charge cap that’s simply not commercially viable, there’s no money to be made from piddly AE schemes with small member numbers and small contribution levels, why get involved? I’m surprised that any intermediaries are remotely interested. Apart from the fact that, as a small intermediary, I wouldn’t be able to provide the service required to run any sort of group RB scheme, I’ve better things to do with my time.

  9. @Julian
    Isn’t the point (right at the very top of the article) that L&G are campaigning in favour of the govt .5% cap and then refusing terms. L&G aren’t saying it is not commercially viable; they are saying it is but are refusing smaller schemes themselves. UTTER HYPOCRISY

  10. I am with Simon Webster and Paul on this. Complete hypocracy on the part of L&G. Nothing new there as far as they are concerned. Protection yes anything else? You most be joking.

  11. Many thanks everyone for taking the time to comment. Another adviser has been in touch to say he’s had similar communications from L&G.. He was told L&G were only offering two options for auto enrolment:

    1 At least 50 eligible members, at least £200 per month average premium from day 1 (so no scope to grow contributions through phasing in), AMC no more than 50bps (might be less).

    2 At least 50 eligible members, no minimum premium, 50bps fixed charge and their multi-asset fund has to be the default option and the employer must pay L&G a £1000+VAT set up fee.

    We reported on the upfront fee in September: When asked if this fee would be increased for a move into less than 50 employer schemes, L&G said it wouldn’t be and also suggested the fee is negotiable depending on the amount of set up work the adviser firm does itself.

    Would be good to hear from other firms who have had similar experiences.

  12. This seems a bit like a medium-high-end shoe manufacturer lobbying the government to pass a law that all shoes must be made of high-quality material and last at least two years. Well, who could disagree with that?

    Result: everyone who can’t afford to spend £50 on a pair of shoes goes barefoot.

    If you’ve been so damn good in cutting your costs – without comprimising service, I am sure – then let the market decide. Any business worth its existence should not need the government to close down its rivals for them. The sight of a supposedly private business campaigning for the state to interfere in its own market for its own benefit should send a shiver down the spine of every free man.

  13. Why are there stakeholder charges 1% one must ask.

  14. Just to clarify my point . With their low charging trackers,available to other providers products and platforms , L&G do not need to compete in the AE scheme space ,they can just pick up the funds from those prepared to operate smaller schemes. It’s the fund business they really want they will continue to be picky with AE schemes and only accept those they consider profitable long term . So yes they are disingenuous in their comments but you can see why it suits their model . They are no longer an IFA firm and are moving direct more and more, so they do not care.

  15. @PaulB – Then they should BUTT out of commenting on business they don’t want.

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