Brian Goldstein, chairman of the Association of Policy Market Makers (APMM), representing TEPS marke...
Brian Goldstein, chairman of the Association of Policy Market Makers (APMM), representing TEPS market makers, says that moves to shore up pensions and deal with projected costs of tertiary education in the next decade will result in a growing TEPS market.
The ability to buy into "guaranteed" income some 10,11 and 12 years into the future will have significant appeal to parents of children whose three-year university education costs are predicted to soar following government moves to push so-called top-up fees and student loans.
Baby-boomers facing the demise of final salary schemes and having to assume significant additional individual risk through money purchase schemes will find favour with the idea that pension income can be purchased in a way that might be more efficient or secure than a DC scheme recommended by an employer.
"The shift to money purchase is good news for TEPS," Goldstein says.
"The increased demand for TEPS as a result of this not expected to happen suddenly. But people will gradually realise what the benefits to them are when faced with having to take more responsibility for their own pension provision."
"The future total cost of a typical three-year university degree could total £30,000 to £40,000. TEPS are another way to help cover this cost. For example, parents of an eight-year-old today could buy policies maturing in 10,11 and 12 years' time."
Average policy values of traded endowments are between £15,000 to £20,000 at present, Goldstein says.
APMM members, who, Goldstein says, represent more than 80% of the market, are more likely to sell more than one policy at a time, however, with purchasers usually buying a portfolio of policies.
TEPS demand and supply have swung round this year, in part because of the two-year delay built into the system for relating the value of policies to the value of underlying assets.
What this means is that consumers have this year been receiving letters about their policies with heavy reference to the downturn in asset values begun in 2001. This is stimulating demand to surrender policies, which, because of regulations forcing providers to point out the secondary market option, is also resulting in more interest in the TEPS market from the supply side.
Demand is being affected by factors such as those outlined above, as well as the APMM being able to get the message out to IFAs that their clients' best interests could well be met by the market.
Significant interest in TEPS is also being expressed from overseas, with South Africans keen to buy in order to secure income in a more stable foreign currency – although direct marketing is not allowed because of currency regulations in effect in that country. Expatriates in Asia, the Middle East and North America, are keen, as are German-speaking investors, with Germany, Austria and Switzerland proving fertile ground for TEPS, Goldstein says.
The growth in the market could also result in a growth in the numbers of APMM members. Goldstein warns, however, that new members will have to carry their share of the cost of keeping the association going, and will have to meet commitments to best practice currently enforced by membership rules.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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