82% of stakeholder schemes in operation are effectively empty shells with no members, abi says
Less than a fifth of employers are making contributions to stakeholder schemes set up for employees.
These findings come from the ABI's latest research into stakeholder pensions, which also highlights the fact 82% of schemes in operation are effectively empty shells with no members.
Recent government research shows only a quarter of the stakeholder target group, namely those earning over £10,400 without private pension provision, are likely to take out a stakeholder pension in the future under the current pensions regime.
According to the ABI, this combination of circumstances means that without urgent action, stakeholder pensions will fail to fulfill their potential and will not make an impact in closing the savings gap.
Supporting the trade body's view that employer contributions can make the difference between employees joining schemes or not, stakeholder take-up stands at just 13% among employees whose employers do not make contributions, against 70% among those who do contribute.
'With take-up of, and contributions to, employer-sponsored stakeholder pensions at these weak levels, there is little to suggest the stakeholder market is about to take off,' the ABI said.
'It is also unlikely stakeholder pensions will fill the gap left by the decline of defined benefit occupational schemes. A tiny minority of employer-sponsored stakeholder plans have members and employer contributions. The Government must act now to reverse this situation.'
In order to generate stakeholder demand, the ABI has made a number of proposals including a pension contribution tax credit (PCTC) to incentivise employer contributions and an advice credit to help smaller employers meet the cost of providing pension advice in the workplace.
Under the PCTC, employers who contributed a set amount to a stakeholder scheme, and got a certain number of staff members to join, would qualify for the credit, which would be paid as a percentage of their National Insurance bill.
ABI research shows this would cost around £900m but generate over £3bn in new pension savings.
In addition to the workplace advice credit, it is also suggesting employers should be exempt from the Financial Promotions Order, which currently prevents them from actively promoting the stakeholder schemes they run.
While total stakeholder sales now exceed 1.5m since launch in April 2001, sales have continued to slow down, falling by 10% in the second quarter of 2003, compared to the corresponding period last year.
According to the ABI, this fall is in the context of a continuing drop in overall personal pension sales, now back below pre-stakeholder levels.
ABI director general Mary Francis said: 'Stakeholder pensions have so far fallen short of expectations. We must take more action now to ensure people use them to start saving for a decent retirement.
'We know active employer involvement in pensions works, which is why we are recommending a programme of employer action to boost take-up be taken forward by the Government, employers, unions and the pensions industry.'
The ABI Report is based on information from 38 of the 51 stakeholder pension providers under the Occupational Pensions Regulatory Authority.
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