By Leo Bland Legal & General is to launch a with-profits fund, which will comply with the onerous co...
By Leo Bland
Legal & General is to launch a with-profits fund, which will comply with the onerous conditions for stakeholder.
Under the final stakeholder regulations, in order to provide a with-profits option a life office must launch a new fund so the assets are kept separate from existing with-profits funds.
The with-profits option has been rejected by other life offices as it is seen as not commercially viable due to the large amount of capital needed to set up a new with-profits fund.
The costs of providing guaranteed returns in a new fund would likely exceed the 1% cap, according to the ABI.
Adrian Boulding, pensions strategy director at Legal & General, said the group is keen to offer a with-profits option as this would meet the more cautious investment profile of much of the target market for stakeholder.
The group has not finalised its plans but is looking to do so by October when it plans to market its stakeholder offering to empl-oyers. One of the options is likely to be a with-profits fund with over half of its holdings in cash and gilts, which would be less expensive to administer.
Boulding said: "Over 50% of our pensions customers want with-profits but one of the stringent constraints is with-profits funds under stakeholder must not be shared with other with-profits policyholders."
Scottish Equitable said it will not launch a with-profits option for stakeholder. Steven Cameron, manager, pensions development at Scottish Equitable, said: "I am not aware of any new with-profits funds being launched in the last 20 years despite the fact that we have had many new entrants into the industry over that period.
"The reason is these funds are so capital hungry. Our view is that by insisting providers must have a separate, brand new with-profits fund for stakeholder the Government has made it extremely financially unattractive to providers.
"We have the capital to do it but we would not want to use it in this way."
Alasdair Buchanan, head of communications at Scottish Life, said the group will not be offering a with-profits stakeholder option.
He said it would involve a one-way subsidy between existing with-profits policyholders as money could be taken from established with-profits funds to launch the new stakeholder fund.
However, under stakeholder regulations, capital cannot be taken from the stakeholder with-profits fund to inject into a group's other with-profit fund.
Buchanan added that as market value adjustors cannot be used on stakeholder with-profits plans, the cost of smoothing would be higher than on other with-profits pensions funds.
Buchanan said this may mean the investment mix in a with-profits stakeholder fund would have to have more than 50% in gilts and cash in order to keep the cost within the 1% annual management charge cap.
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