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Will IPA ever go to the ball?

What happened to the IPA? No, not the Institute for Prac-titioners in Advertising, which has its hands full at the mom-ent, and, no, not the brewery, whose beer is still being guzzled but the individual pensions account – New Labour&#39s next big idea for pensions after stakeholder.

Despite drumrolls following on from a tortuous gestation, there was nothing but the sound of silence.

IPAs went live at the same time as its no-frills stakeholder sister pension in April last year and while stakeholder stole the thunder and then limped along, IPAs have never even got going.

Before their launch, Mel-anie Johnson – then Treasury economic secretary – triumphantly declared that the IPA proposals had been “widely welcomed” and legislation would create a level playing field for them to compete with other products. The idea was to give private pensions direct access to unit trust, Oeics and investment trusts.

Almost a year later, however, the IPA still cuts a lonely figure. The regulator confirms there is just the one solitary offering – from Virgin Direct – and testily says general enquiries about the IPA should be directed at the Government, not them.

The Treasury still believes that the IPA offers a flexibility that could be valuable for a certain part of the market. A spokesman says: “It was always thought that IPA would be on the slow burn. We still hope that more providers will enter the market.”

A Virgin Money spokes-man explains its take on IPAs. He says: “It was just easy for us. We do not go out of our way to market it as an IPA or to say we are the only pro-vider of one. It is just the engine under the bonnet of our stakeholder. We find the negative publicity surrounding IPAs amusing.” Its IPA, however, is tied into its own unit trust.

However, the rest of the industry has shunned the IPA. Standard Life senior technical manager John Lawson says for established life companies, using already established funds which they could acc-ount for on an embedded value basis was always going to be much more attractive.

The fund management ind-ustry, despite its enthusiasm to grab a share of the retail pension market, has so far conspicuously failed to take up the challenge.

An Investment Managers Association spokeswoman says the combination of Treasury, FSA and Inland Revenue rules conspire to prevent its members from being able to use the IPA format.

She says: “It is highly, highly complicated. Fund managers have to put so many bolts into it that it becomes too unwieldy and that is way before you can even consider whether it is profitable.”

Lawson believes the IPA is the classic example of the Government not understanding or listening to the industry. The problem started, he says, when civil servants went to the US and admired the 401(k) pension plans and came back with grand ideas about implementing them here without taking sufficient account of the complexity of indigenous pension legislation.

Originally, the IPA was going to be called Lisa (lifetime individual savings accounts), and subsequently – and even more unfortunately – a PPI (pooled pension investment). According to the Government, an IPA is “a financial instrument that acts as a wrapper for pension scheme investments, facilitating transparency and in specie transfers, not a pension scheme itself”.

Accessible through stakeholder and other personal pensions or money-purchase occupational schemes, its raison d&#39être is to give the pension saver control over investment choices and the ability to switch funds without incurring the cost of switching pension provider.

Lawson says the only way in which the unit trust industry could enter the pension industry is if the companies set up shared admin or that administration was nationalised as it is in Sweden.

If the IPA is like a dress bought in a moment of shopping mania and never worn, then its purchaser is Paula Diggle, the civil servant widely credited with responsibility for the IPA while at the Treasury and now at the Revenue. Like a gown in search of a ball, the IPA has surfaced in the recent Mod-ernising Annuities paper, a consultation jointly by the Revenue and Department for Work and Pensions.

The consultation paper suggests that pensioners who have bought a limited period annuity and who still want to retain full control over the remaining, non-annuitised funds, might find an IPA appropriate.

“Yes,” says Roberts Clark director Ashley Clark, “that would work. But providers would have to offer it first.”

Is it too early to be consigning the IPA to the Oxfam shop? Certainly, the ideas behind the IPA – portability, transparency and control – are all laudable ones.

Clark believes it is simply a product ahead of its time. It is the practicalities rather then the idea that come in for the criticism.

For instance, IMA chief executive Richard Saunders says: “The Government tried to carry forward a commendable idea which just got caught up in the sheer complexity of pension legislation.”

He says the Government is very receptive to ideas on how to improve the IPA rules. In unusually emollient language, the Treasury says it is always open to suggestions from industry and will take them seriously.

Perhaps the IPA&#39s clearest hope of a knight in shining armour comes in the figure of Alan Pickering, who is charged with the unenviable task of pensions simplification.

In its response to the Pickering review, the IMA argues that the IPA should retain the lock-in to retirement and the tax treatment of a personal pension but bec-ome much more like an Isa as a product – a retirement Isa. Likewise, the Pep and Isa Managers&#39 Association has just launched its solution to the unloved IPA -” a cradle to grave Isa” or retirement savings account.

The IMA response – which has also been sent to Ron Sandler – is urging that the Government resists the temptation to impose maximum charges which could stifle marketing of the product or lead to it being sold without advice.

If the Pickering review offers the Government a chance to reconsider the rules, the IPA might just have a ball to go to.

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