The Government's most recent pronouncements on stakeholder are a definite boost for the GPP market. ...
The Government's most recent pronouncements on stakeholder are a definite boost for the GPP market. The exemption of GPPs from stakeholder pensions, so long as employers contribute the equivalent of 3% of employee earnings, will mean that IFAs can continue to sell GPPs without fear that they will have to revisit the product once stakeholder is launched.
This means a good portion of existing GPPs arrangements will not have to switch into stakeholder arrangements and it could also mean a lighter administrative burden in reviewing the schemes already sold. It will still be necessary to revisit some existing schemes to make sure they conform with the 3% contribution rules but newer schemes are likely to need less scrutiny due to the influx of stakeholder friendly products from providers. All in all it this has been a welcome development for intermediaries.
The Government appears to be taking on board the argument that value for money is often better than cheap product. The fact GPPs can be acceptable within the stakeholder environment preserves the idea that employers should contribute to an employee's pension - a valuable benefit. In the pure stakeholder product with its 1% cap there is no such element of compulsion. It might well be cheaper up front but it does not necessarily give the largest pension.
The allowance of the cost of advice to be added to the 1% cap as an additional charge is a welcome concession, albeit a small one. While this does provide more scope for individual advice, the Government has yet to really spell out how this would work.
As the plans stand any charge for advice would have to be expressed as a fee and not as commission. Further lobbying on this latter point will no doubt take place and at least the Government is listening.
The recent announcement has also raised the ceiling on minimum contributions to £20 from the original £10. This is one of the areas where advice is most needed.
Decision trees are not sufficient to explain the complexities of how saving £20 even every month may disadvantage a stakeholder scheme member as they could have been better off with State benefits under the minimum income guarantee.
There are still some issues to iron out but the sting of stakeholder pensions seems to have gone. Still its presence over the past year has been needed despite all the debate and fear that it created.
Costs have been driven down, companies have streamlined their administration and some simplicity has been injected into the UK pensions world through the creation of an overarching defined contributions pension regime.
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