By Mohamed Ali Bernat The introduction of stakeholder pension rules next April will quickly expose ...
By Mohamed Ali Bernat
The introduction of stakeholder pension rules next April will quickly expose providers unable to sustain their business in a 1% environment, according to Graeme Laws, deputy managing director of National Mutual.
Speaking at the Sofa conference, Laws said evidence from Australia's introduction of a stakeholder-like regime had resulted in just a handful of providers remaining in the market.
National Mutual is one of the few companies to openly state it is not entering the stakeholder race and Laws said this was because the business model did not make sense for even the biggest provider.
He said: "What an IFA must do if he is truly looking after his clients is go to a provider and say he has seen a better deal down the road and can they knock off a few pips from the charges.
"After a year he could move the funds to the next provider who is offering to manage the money for 0.5%pa. According to projections, this would leave someone who has been putting in £100 per month with a fund of £1,242 while the life office is looking at a return of £6 for looking after the policy.
"This game requires deep pockets. There are 30-40 providers saying they want to get involved when most observers are agreed that in a few years there will only be three or four remaining in stakeholder. The hawks will sit and watch and wait until substantial amounts of money have been built up and then they will move in."
Laws added that a handful of providers would have to spend big to be successful in stakeholder but they would not leave their distribution in the hands of people over whom they had no control.
He was also dubious as to where the UK IFA will fit in to the stakeholder model because the old argument of being able to scour the market while being paid by the provider rather than client was in jeopardy in a 1% environment.
"In the US advisers make sure there is clear blue water between the cost of the product and the cost of advice," he said.
Referring to the possible use of advisory fees to replace commission, he added: "In the UK stakeholder is driving us in a direction where it is difficult for the consumer to weigh the value of added advice against the cost of that advice."
NPI chairman Trevor Thompson also spoke at the conference. He said retirement savings would be the shape of the market over the long term and added there was plenty to be optimistic about.
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From 1 March