The advent of basic advice is leading providers to look at relaunching higher-charging products on the basis of supporting intermediary remuneration in the full advice market.
With Standard Life cutting stakeholder commission following similar moves by Scottish Equitable and Norwich Union, the product appears to be in serious decline.
The launch of Norwich Union’s non-stakeholder pension and simultaneous further downgrading of its stakeholder offering marks a shot across the bows of RU64.
But while the majority of life offices do appear to be moving away from majoring on stakeholder, their strategies are surprisingly divergent.
Scottish Equitable head of individual pension marketing Douglas Jones says the market is splitting into wealth management and commodity strands, with non-charge-capped pensions providing the margins for full advice for the former and stakeholder the commodity product for the basic advice market.
NU’s cap-busting pension launch has seen the life office throw its hat in the non-stakeholder ring, following on from Scottish Equitable’s similar launch in April and Scottish Life’s revamping of its offering shortly before that.
Scottish Widows, Friends Provident, Clerical Medical, L&G and Prudential are holding fire until next year due largely to concerns over RU64. They are also delaying reducing stakeholder commission in a strategy to take share from the biggest two players in that market, Standard Life and NU, which have already cut rates.
Standard Life, on the other hand, is majoring on its Sipp proposal. At 400 a year all-in, the group says for investors with pension pots of 50,000 the charges will actually equate to less than 1 per cent.
It anticipates that the bulk of transfer business will go into its Sipp and has removed IFA commission on single-premium and transfer stakeholder business.
In contrast, Scottish Equitable has increased commission for this business while slashing it for regular premiums to attract potentially more lucrative transfer deals.
NU’s forthcoming Pension Select product is flexible in that advice can be funded out of fees or commission but the commission structure allows for an initial charge equivalent to 10 per cent of premiums for each of the first five years of the term or 20 per cent of premiums for the first two years. This equates to remuneration in the region of 25 per cent of the first year’s premium plus uplift.
While many groups have existing non-stakeholder offerings and wish to revamp them to provide more transparent, typically unbundled charging structures to suit the current climate, the timing of NU’s launch has surprised many as the future of RU64 remains so up in the air.
Scottish Life group head of communications Alasdair Buchanan says: “The advent of the Sandler suite, with the lighter-touch regime, created clear blue water between fully-advised and lighter-touch sales or so we thought. The reality is the FSA has not taken a decision on that so there has to be doubt in any adviser’s mind over recommending another product over stakeholder.”
NU head of pensions Iain Oliver stresses that the new product has a 1 per cent annual charge when internal funds are selected, depending on commission an IFA takes.
He believes RU64 is an issue but any decent adviser should look to justify recommending something more expensive regardless. He says the merit of the non-charge-capped product is a wider fund choice. While the group could be argued to be pushing advisers into the higher-charge product because it has reduced the number of funds available within its stakeholder from over 30 to just four, he says this is to make it more suitable for the basic-advice world.
Jones is also keen to justify Scottish Equitable’s stance, stressing that it is just providing for the different ends of the market. He says: “We feel relaxed we have both products. Our flexible pension plan is more expensive in the short term but not like the product types of 1990 and we make it very clear that if individuals have fluctuating earnings, are very close to retirement or not wanting the add-ons, it is probably not suitable for them.”
Scottish Equitable was hammered in the press for the scale of the penalties it imposes on contracts that are terminated early.
Hargreaves Lansdown head of pensions research Tom McPhail says the sheer scale of charges in the early years of the contract are off-putting and he also believes that NU’s offering is a bit thin on benefits for the extra cost and a little too close to the Scottish Equitable product for his liking.
McPhail feels that consumers with decent-sized pots might be better served by consolidating their personal pensions into Standard Life’s Sipp.
He says: “I am watching the stakeholder market with interest. There has been a radical shift over the past three years and we are seeing a rapid shift away from stakeholder, which was the only game in town for a while, to higher-charge, higher-value products.”
Standard Life’s focus on the Sipp market has surprised some as the product is unlikely to be suitable for the bottom end of the market. Senior pension technical manager John Lawson says IFAs servicing the top end need to charge fees and the Sipp is well suited to that.
He adds that ABI research showing 80 per cent of pension pots are under 30,000 is misleading as most people have several pension plans, so the Sipp can act as a consolidator.
Oliver says: “I am glad we are doing something completely different to Standard Life. I am not sure the Sipp market will grow significantly. It has been supported by the drawdown market which does not need it to function anymore.”
How the RU64 issue develops and if Sipps go mainstream remains to be seen but the next year will bring a raft of new products. The rules may be getting simpler but product choice is getting more complicated.