US groups are extremely unlikely to offer a stakeholder product direct to the UK market The only via...
US groups are extremely unlikely to offer a stakeholder product direct to the UK market
The only viable route for US companies to enter stakeholder would be through joint venture or merger with an existing UK group, say industry experts
The notion that the Americans' earlier adaptation of technology gives them an edge in the UK does not eliminate the problems a US group would have entering the UK market
While similarities exist between the US 401(k) plans and stakeholder, American groups would still have to re-work their systems to comply with the complex UK regulations
Mike Carr, marketing executive at third-party administrators Marlborough Stirling, said: "The UK market has a history of complex legislation and there are layers of this throughout the pensions industry. For a US group to come in and understand that would be extremely difficult to do without a partnership with a UK company. Some 401(k) providers think they could easily penetrate the UK market but there are major problems to overcome. In terms of administration, we would recommend that they come in via a joint venture
This is the route which American 401(k) provider Principal is planning to follow, although it has not yet decided on a UK partner
Ned Bermeister, vice-president of Principal International, said: "The technological advances in US systems do not make the task of operating in the UK stakeholder market any less challenging for a US group than a UK group
"There are significant differences between 401(k) plans and what is envisaged for stakeholder. As far as administration systems go, there are enormous differences. I do not think you can take a 401(k) system wholesale to the UK and expect it to work. The US does not have the claim for tax rebates that they have here, the tax and regulatory environments are completely different
The recent Government tax proposals for stakeholder, which creates a single tax regime for stakeholder and other personal pensions does make the prospect of entering the UK pensions market more attractive. In the past, American groups have had a difficult time migrating to the UK due to branding problems as well as failing to understand the cultural differences between the two markets
Brian Chilver, technical service manager at Lincoln, said: "American companies could have hurdles that UK companies have already dealt with in the past such as branding issues. The greatest advantage US groups have over UK providers is their experience with technology and with a high-volume, low-margin product. Stakeholder will not make money in the short term. US groups have already been through that with 401(k) and now make profit. They can afford to take a long-term view with the UK market
While the US has had experience with low-margin product, it still is not as low as the 1% proposed cap on stakeholder
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