The ABI is lobbying the DSS to relax its proposal of a daily calculation of charges for stakeholder ...
The ABI is lobbying the DSS to relax its proposal of a daily calculation of charges for stakeholder pensions due to worries that life office systems cannot cope, writes Robert Stock.
The association believes the massive burden of costs to develop computer systems capable of dealing with the proposed calculation may cause some groups to pull back from making stakeholder offerings.
When the 1%pa cap was first suggested, there was debate on how and when the 1% would be calculated. The DSS clarified this point in its recent draft regulations for stakeholder, making it a requirement of groups to deduct no more than 1/365th of the daily value of the policy.
Unit trust companies calculate the value of their funds on a daily basis and the majority of life offices have also moved to this frequency of valuation. However, the issue is not just about frequency but the fact that companies must calculate and then store each day's valuation and deduction for each policy for the entire term of that policy.
Malcolm Tarling, spokesman for the ABI said: "We do not believe there are computer systems out there that can cope and this has to impact on our members, particularly when they are already working with tight margins.
"At this stage it is a question of convincing the DSS of our concerns that having to re-evaluate on a daily basis is going to be burdensome, cumbersome and very expensive. Once that is achieved we will look for alternatives."
The ABI's concerns are shared by the industry. Scottish Life's head of communications, Alisdair Buchanan said: "We already have methods of calculating charges that are perfectly satisfactory and we do not see any advantage in adopting the approach the DSS is suggesting."
Buchanan said the extra costs would have to be passed on to the consumer in order to make stakeholder sustainable and could discourage any providers from making sub-1% offerings.
Steven Cameron, pension development manager at Scottish Equitable, said because the life industry approached pricing in different ways there was no consensus on the seriousness of the calculation issue. Cameron agreed the cost of adapting systems would deliver no direct benefits to the policyholder. The regulations also require each of these calculations and daily deductions to be included on the annual statement to the policy holder.
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