Pensions minister Malcolm Wicks told delegates at the recent Labour Party conference that stakeholder was a resounding success.
Speaking at a fringe meeting, entitled, Pay Now Spend Later: Is The Gov-ernment Savings Policy Going To Bridge The Savings Gap?, Wicks was asked by Money Marketing if he would acknowledge that stakeholder pensions have failed to engage their demographic target and what lessons had he learned that could be applied to the Sandler suite of products.
The consummate politician answered his questioner: “I will not begin to embarrass you by asking where the figures are to prove stakeholder is a failure. All you need to do is look at the amount of money that has gone into stakeholder schemes.”
Latest figures from the ABI show that the total number of stakeholder pol- icies sold to date (up to and including the second quarter of this year) is 2.1 million, of which one million are employer-sponsored.
However, neither Wicks – nor anyone else – can presently provide up-to-date information on how much of this money comes from the Government's demographic target of people who earn under £30,000 a year.
The last set of figures anyone – including the minister – could have seen on take-up of stakeholder by income come from data compiled by the ABI in August 2003.
These figures show that where information on earnings exists – and the information is limited in this area – the majority of people with stakeholder pensions earn between £10,000 and £29,999 and 40 per cent earn between £10,000 and £19,999.
People between 16 and 34 make up 43 per cent of stakeholder sales and people 35 to 64 make up 54 per cent of stakeholder sales.
These would appear to be the statistics that Wicks is speaking about but if he is taking these figures as proof of stakeholder's success he has disregarded any commentary that went with them.
Commenting at the time, ABI director general Mary Francis said: “Stakeholder pensions have so far fallen short of expectations. We need more action now to ensure that people use them to start saving for a decent retirement.”
The research also shows that 82 per cent of all schemes are empty boxes with no members and sales of stakeholder are falling.
Inland Revenue figures, for the year ending April 5, 2003 show that 1.56 million people earning under £30,000 were contributing to a stakeholder pension and 6.32 million were contributing to “either or both a personal and stakeholder” pension – not definitively proving stakeholder a success either.
Other organisations armed with their own res-earch show a different side to stakeholder. The TUC has labelled it a failure, saying it is being used as a tax dodge for wealthy parents to invest on behalf of their children rather than attracting the low-earners it was planned for.
The TUC says employees are putting in an average of just £720 a year into stakeholder pensions, which would only pay around a£56 a year pension.
General secretary Brendan Barber says this average contribution is raised by contributions from non-employees such as children and spouses of around £2,000 a year.
He says: “These figures show that stakeholder is a bigger failure than we thought. They were meant to get the low-paid saving but few have been taken up and contributions are even lower than previously estimated.”
Scottish Equitable pensions development director Stewart Ritchie says there is a very good reason for Wicks' inability to find irre-futable proof that stakeholder is a success in the income brackets it is aimed at. He says: “The Government has not made it financially viable for providers to collect and keep such information.”
Ritchie explains that when stakeholder was originally set up with a price cap of 1 per cent, many providers felt it was unreasonable that the Government would expect them to sell stakeholder at such low margins and also bear the expense of deriving and keeping data not necessarily central to the admin of the product.
He says: “Understandably, the ABI was unsympathetic to the Government's wishes for detailed statistics at such low margins, so, because of its own restriction, much of the Government's ability to monitor stakeholder is somewhat hampered.”
The ABI estimates that the retirement savings gap in 2003 was £27bn and growing. But just how Wicks is able to claim that stakeholder has been successful at significantly reducing this gap has yet to be clarified.
In his recent pension review, Adair Turner said stakeholder – as the Government's attempt to close the gaps in private pensions – “has only had a limited effect”. Turner revealed that although 65 per cent of companies with five to 12 emp-loyees have nominated a stakeholder provider, only 4 per cent are making contributions.
Second, he points out that a big proportion of money which has moved into stakeholder was originally going into other types of pensions, doing nothing to close the savings gap.
He says: “There is little evidence of a net increase in ongoing pension contributions flowing into personal and GPPs as a result of the introduction of stakeholder pensions.
“This was supposed to substantially change the way that lowto mid-income earners arrange their pension provision. There is no sign this has happened. In fact, if anything, pension provision has become worse.”
Ritchie says the existence of stakeholder is a “blight on the market” which is preventing IFAs from adequately supplying pensions. He says if IFAs feel that a pension is necessary for their client, they now have to give a reason for not recommending stakeholder.
He says: “This is a farcical situation where advisers are effectively tied to stakeholder as a concept irrespective of whether it is right for their client. Yet even with the increase in price cap to 1.5 per cent, there still is not enough there to let IFAs give advice to their clients.”