There is no doubting pension minister Jeff Rooker's determination to see stakeholder implemented but...
There is no doubting pension minister Jeff Rooker's determination to see stakeholder implemented but at what cost to the industry?
As his interview with Investment Week shows the Government believes it has created a regime which will keep rules to a minimum, allowing the industry and the creative miracle that is the free market to produce decent quality products for the target group. The message is clear while the rules are being kept to a simple they will be strongly enforced.
If a product provider decides to cross subsidise its stakeholder product then that is fine in the DSS's eyes. But that said, Rooker is quite clear that if such a company then falls by the wayside that is tough luck. The law of the market applies.
So while all the glittering upside of the Thatcherite market is on offer so is the dreadful downside. But in addition the upside is somewhat capped because of the Government's desire to limit the cost of stakeholder to 1%.
It is worth emphasising on these points because there seems to be a huge raft of life companies which think they are going to succeed in a target market of five million people maximum, with an average annual income of £10,000 to £20,000. While intermediaries cannot ignore stakeholder they are going to want to link up with providers that have well-run and sustainable stakeholder products and strategies.
The results are plain for all to see for companies which did not bulk up to sufficient size or have sufficient reserves in the more benign pre-stakeholder era: Equitable Life is seeking a buyer and Scottish Life is merging with Royal London. For many companies the magic chant that will make them money in the 1% stakeholder environment seems to be "the internet".
This conflicts very strongly with the conclusions of a Cap Gemini Ernst & Young report into the matter. Those questioned projected some 34% of their entire IT spend would be on e-commerce by 2003, leading to a 31% reduction in costs.
But Cap Gemini felt that if the US model was followed, e-commerce would become an add on to existing business models rather than a cost-saving. No doubt there is a degree of vested interest in this report and Cap Gemini as an IT consultant might be able to make some money if hundreds of panicked life companies flooded to it for advice. Even so its main point stands. The internet is not a magic solution to business costs in stakeholder.
Stakeholder is going to be a drawnout and tough event. It makes sense to put your money on the marathon runner not the sprinter.
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