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Why Government fears coming clean over with-profits

If the Government wants to ban with-profits from stakeholder, it should

bite the bullet and say so publicly. It would have to justify the decision

and back its arguments with facts and figures, hopefully explaining why to

Parliament, the pension industry and consumers.

As a result, ministers would find it difficult to boast about extending

consumer choice when they are restricting it. When the Government announced

a reprieve for with-profits policies within stakeholder, Money Marketing

and most IFAs applauded the decision. But the final regulations confirm

stakeholder funds must be ringfenced from other funds. While the industry

is adept at coming up with clever ways around the sillier policy decisions

of the Government, this may prove too difficult a task.

The irony is it will be next to impossible to offer with-profits

stakeholder funds profitably. The only way most providers believe they can

offer this option is at extreme cost to other policyholders, making the

constraints of the 1 per cent management charge seem almost generous.

In practice, consumers are to be denied one of the most popular forms of

investments for their stakeholder savings. The target group is supposedly

those who have never invested in the stockmarket. Not only do they have to

negotiate the decision tree forest, they are expected to plunge into

unprotected stockmarket investments.

The Government should say openly exactly what it wants to do and why. The

problem is it might just lose the argument and the one thing this

Governmentdoes not like is to be proved wrong.

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