Report commissioned to look at raising 1% initial charge to 5% on Sandler products
The Government has commissioned a study into the charging cap on its proposed Sandler suite of products, looking at the possibility of raising it to 5% initial and 0.75% annual.
The Treasury, which is expected this week to outline the products that can be held under the Sandler suite, has been under pressure from the industry to allow products to feature higher charges than the 1% originally proposed. It has outsourced research into different charging structures to B&W Deloitte and it is to report on the final charging structure in the autumn.
A raise to 5% initial would be a more attractive charging structure for the industry while remaining in keeping with the Government's stated aim of pursuing a low charge environment.
Life insurance analyst Ned Cazalet said consumer groups, though, would be unhappy with a higher initial charge structure. This is because it would take 25 years for a regular premium investor paying 5% initial and 0.75% annual before the charges would equate to the same as 1% per year, assuming a 7% per year investment return over that period.
A changed attitude to charging structures reflects the fact the Government acknowledges the charging structure for stakeholder has failed, he added.
Not all life offices believe a higher initial fee would encourage them to sell the Sandler suite of products. Ian Naismith, head of technical marketing at Scottish Widows, said: 'This charging structure would be welcome for us but it is still marginal as to whether it would be worth it for us to sell them. It is not clear there would be a significant level of demand.'
Others were more positive on an initial charge structure.
Alasdair Buchanan, head of communications at Scottish Life, said: 'The industry has been lobbying hard and this seems to have paid off as the Government appears to be taking a more realistic approach.
Allowing higher up-front charges would reduce the capital strain on writing new business, which should encourage providers to sell more.
The products sold within the Sandler suite will include the child trust fund but exclude annuities and protection products, according to Nigel Stammers, head of industry affairs at Clerical Medical. Mutual funds that have an equity content of 60% or less are also expected to be allowed under the new regime. He said the suite of products should be in place in a year.
A feedback statement on discussion paper 19 on the regulation of simplified products is to be published on 15 July. This is expected to outline what qualifications will be required to sell the new products and what recourse consumers will have if they feel they have been mis-sold a product.
A feedback paper examining the detail of what the products will look like is to be published on 17 July.
HL and Liberty SIPP slowest
Lifetime and annual allowances
'IFAs bore the brunt'
'Recovery or boom'