With-profits will be allowed into stakeholder provided any charges are within 1% per year, writes Je...
With-profits will be allowed into stakeholder provided any charges are within 1% per year, writes Jenne Mannion.
This key decision was contained within the draft regulations for stakeholder pension, released by Alistair Darling, Social Security secretary, last week. It has been widely supported by life companies.
Peter Jordan, pensions development manager at Skandia Life, said the consultation document did not make it clear how transparency would be achieved.
He said transparency would depend upon with-profits funds having explicit charges and their assets ring-fenced. One means of doing this would be to distribute growth to investors as it arises and ensure bonuses are shared equally between investors, regardless of how long they remain within the with-profits fund, Jordan suggested.
Once a transparent system is achieved it looks as if providers will have to launch new with-profit funds, operated independently of existing vehicles.
Shanti Dugall, head of stakeholder services at Friends Provident, said his company had in September last year launched a with-profits fund which operates within its current stakeholder friendly structure.
Dugall said this fund addresses the issue of transparency in charges by stating an explicit fee, for example 0.55% for monthly plans of £150 to £250. The ABI has been lobbying strongly for the inclusion of with profits in stakeholder.
Nigel Stammers, pension strategy manager at Clerical Medical, said a big concern to emerge from the draft regulations was that the basis for charging, daily at 1/365 of 1%, could lead to a reduction in yield of more than 1%. He said: "We've done calculations under this system and the RIY ends up being 1.06%, so consumer is effectively paying more than 1%."
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Transfer from occupational scheme
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