By Kira Nickerson Co-operate Insurance Society (CIS) is to launch its stakeholder product with a ...
By Kira Nickerson
Co-operate Insurance Society (CIS) is to launch its stakeholder product with a with-profits fund as the default option and the facility to add waiver of premium and life cover.
CIS will offer a choice of funds to invest in including a FTSE All-Share tracker, UK Growth, European Growth, Environ and US Growth funds.
However, the with-profits fund will form the central investment option of the CIS stakeholder pension as the group believes the reduced volatility of a smoothed fund will encourage new customers.
Tim Bunch, chief actuary at CIS, said: "A with-profits fund will be particularly appealing to those investors who currently have no pension provision at all, many of whom will be more cautious investors. It is these people that stakeholder pensions were intended to benefit most. The fund has been designed to provide transparency that people expect from a modern-day investment, while providing smoothed returns."
The with-profits fund will operate as a unitised fund, with the price of the units calculated on a daily basis.
Bunch said: "Although the price can move down as well as up, price reductions will be both less common and less extreme than for a similar unit-linked fund. This provides the transparency of investment return and charging required by the stakeholder regulations, allowing policyholders to keep regular track of the value of their pension fund at any time."
In addition to a 1% charging cap, the group's stakeholder offering will also feature the ability to take contribution holidays and opt for rising contributions.
Contributions can be raised annually by either the rise in the Retail Price Index or increased by 1% increments up to a maximum of 10%.
The product also offers staggered vesting leading up to retirement. This allows members to draw their retirement benefits in stages in the years leading up to retirement so that they can take part-time work without taking a large drop in income and they can also continue to contribute to the plan while drawing benefits.
In addition to the stakeholder plan, CIS is writing to all of its existing pension members to offer them a guarantee.
As of 6 April, CIS's existing personal pension holders will be charged the stakeholder rate of 1% or their prevailing rate, depending on which is lower.
Mike Fairbairn, general manager and actuary at CIS, said: "We are concerned that there may be many customers who may be attracted by a 1% charge without realising that this is more than they are currently paying.
"For these people, a move to stakeholder could leave them up to tens of thousands of pounds out of pocket."
For example, an estimated retirement fund for a male saving into an existing CIS arrangement since July 1991, using the PIA's standard assumed growth rate of 7% pa is £189,000.
If a 1%pa future charge was assumed at the same growth rate, the estimated fund would be £151,000, 20% lower than the existing pensions, according to Fairbairn.
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